E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems

• Estimating the Appropriate Quantity of Settlement Balances in a Floor System

  Staff Discussion Paper 2023-26 Narayan Bulusu, Matthew McNeely, Kaetlynd McRae, Jonathan Witmer

  This paper presents two complementary approaches to estimating the appropriate quantity of settlement balances needed to effectively operate monetary policy under a floor system in Canada.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E4, E41, E42, E5, E52, E58, G, G2, G21, G28

• Three things we learned about the Lynx payment system

  Staff Analytical Note 2023-14 Nikil Chande, Zhentong Lu, Hiru Rodrigo, Phoebe Tian

  Canada transitioned to a new wholesale payment system, Lynx, in August 2021. Lynx is based on a real-time settlement model that eliminates credit risk in the system. This model can require more liquidity; however, Lynx’s design allows Canada’s wholesale payments to settle efficiently.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28

• Redefining Financial Inclusion for a Digital Age: Implications for a Central Bank Digital Currency

  Staff Discussion Paper 2023-22 Alexandra Sutton-Lalani, Sebastian Hernandez, John Miedema, Jiamin Dai, Badr Omrane

  We explore quantitative and qualitative information about Canadians who face barriers to making digital payments. We also consider the implications of ongoing digitalization for modern financial inclusion and a potential central bank digital currency.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Accessibility, Bank notes, Central bank research, Digital currencies and fintech, Digitalization, Financial services JEL Code(s): A, A1, A14, E, E4, E42, E5, E50, I, I3, I31, O, O3, O33, O5, O51

• Anonymous Credentials: Secret-Free and Quantum-Safe

  Staff Working Paper 2023-50 Raza Ali Kazmi, Cyrus Minwalla

  An anonymous credential mechanism is a set of protocols that allows users to obtain credentials from an organization and demonstrate ownership of these credentials without compromising users’ privacy. In this work, we construct the first secret-free and quantum-safe credential mechanism.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): E, E4, E42, G, G2, G21, O, O3, O31

• Privacy-Preserving Post-Quantum Credentials for Digital Payments

  Staff Working Paper 2023-33 Raza Ali Kazmi, Duc-Phong Le, Cyrus Minwalla

  Digital payments and decentralized systems enable the creation of new financial products and services for users. One core challenge in digital payments is the need to protect users from fraud and abuse while retaining privacy in individual transactions. We propose a pseudonymous credential scheme for use in payment systems to tackle this problem.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): E, E4, E42, G, G2, G21, O, O3, O31

• Reviewing Canada’s Monetary Policy Implementation System: Does the Evolving Environment Support Maintaining a Floor System?

  Staff Discussion Paper 2023-10 Toni Gravelle, Ron Morrow, Jonathan Witmer

  At the onset of the pandemic, the Bank of Canada transitioned its framework for monetary policy implementation from a corridor system to a floor system, which it has since decided to maintain. We provide a comprehensive analysis of both frameworks and assess their relative merits based on five key criteria that define a sound framework.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Market structure and pricing, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): D, D4, D47, E, E4, E42, E5, E58

• How Banks Create Gridlock to Save Liquidity in Canada's Large Value Payment System

  Staff Working Paper 2023-26 Rodney J. Garratt, Zhentong Lu, Phoebe Tian

  We show how participants in Canada’s new high-value payment system save liquidity by exploiting the new gridlock resolution arrangement. The findings have important implications for the design of these systems and shed light on financial institutions’ liquidity preference.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21

• From LVTS to Lynx: Quantitative Assessment of Payment System Transition

  Staff Working Paper 2023-24 Ajit Desai, Zhentong Lu, Hiru Rodrigo, Jacob Sharples, Phoebe Tian, Nellie Zhang

  We quantitatively assess the changes in participants’ payment behaviour from modernizing Canada's high-value payments system to Lynx. Our analysis suggests that Lynx's liquidity-saving mechanism encourages liquidity pooling and early payments submission, resulting in improved efficiency for participants but with slightly increased payment delays.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28

• A central bank digital currency for offline payments

  Staff Analytical Note 2023-2 Cyrus Minwalla, John Miedema, Sebastian Hernandez, Alexandra Sutton-Lalani

  Offline functionality is a key consideration for a potential CBDC. We describe the different types of offline functionality based on their duration outside of network connection—either intermittent (for short periods) or extended (for longer periods). We discuss the advantages and drawbacks of each and consider implications for end-user devices, system resilience and universal accessibility.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Digital currencies and fintech JEL Code(s): E, E4, E42, E5, E51, E58, O, O3, O31

• Simulating Intraday Transactions in the Canadian Retail Batch System

  Staff Working Paper 2023-1 Nellie Zhang

  This paper proposes a unique approach to simulate intraday transactions in the Canadian retail payments batch system when such transactions are unobtainable. The simulation procedure has potential for helping with data-deficient problems where only high-level aggregate information is available.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Payment clearing and settlement systems JEL Code(s): C, C6, C63, E, E4, E42, E5, E58