Canada is one of the first major nations to launch a serious inquiry into the use of financial technology at the government level. The Bank of Canada, the country’s central bank, announced that it has launched a research project involving blockchain, the underlining technology behind digital currencies such as Bitcoin. Over the past several years, the financial technology (abbreviated fintech) industry has boomed across the globe. The growth of computing power and the internet has allowed young companies to compete with traditional financial institutions by using innovative new technologies.
Senior Deputy Governor Carolyn Wilkins said the Bank of Canada has launched a joint-venture research project with R3 CEV, an American blockchain technology firm. Although the bank says at this time it is not considering replacing the Canadian dollar with a cryptocurrency, it is exploring the idea of blockchain based interbank transactions. Blockchain is based around a decentralized ledger, meaning there is no central authority controlling transactions within a given system. Instead, the payment ledger is spread throughout the network, giving rise to added transparency, fairness and even security.
The Bank of Canada stated as far back as 2014 that fintech research would be a priority for the bank. Other financial institutions within the country have also discussed the benefits of financial technology. Payments Canada, the institution responsible for clearing payments and settlements, has begun exploring the use of fintech in its own systems. Canadian companies, especially those in Vancouver and Toronto, have adopted a welcoming attitude towards fintech as well. Toronto has been dubbed by some as one of the fintech capitals of the world.
The Bank of Canada is not the only major central bank to prioritize the use of financial technology solutions. The Bank of England, the central bank of the UK, has been on the forefront of the fintech boom, as have other many British agencies. Britain’s central bank has explored the idea of a cryptocurrency-based pound. At the same time, other government regulators have opened a “sandbox” system for young fintech companies, allowing them to temporarily bypass restrictive regulations and enter the market more quickly. The Federal Reserve in the United States has also discussed the future of financial technology, but so far US government agencies have been slow to adapt to the growing industry. The Bank of Canada has now joined the Bank of England in the push for digitization of financial services and infrastructure.