Liquidity Usage and Payment Delay Estimates of the New Canadian High Value Payments System

As part of modernizing its core payments infrastructure, Canada will replace the Large Value Transfer System (LVTS) with a new Real-Time Gross Settlement (RTGS) system called Lynx. An important question for policy-makers is how Lynx should be designed.

This paper presents simulation results to aid in the design of Lynx. The main interest of policy-makers is to measure the liquidity demands of the system and the corresponding amount of time it takes to settle the value and volume of transactions typically observed in LVTS. To assess this, we developed a simulation environment of the Lynx system using the description of its vendor.

We evaluated a variety of configurations of Lynx under several payment demand scenarios. With an initial liquidity comparable to one pledged in LVTS today, Lynx with a first in, first out (FIFO) bypass configuration would require a higher level of liquidity than LVTS or a plain-vanilla RTGS with pooled liquidity. This suggests Lynx could be made significantly more efficient, warranting further research.