Toronto-based Royal Bank of Canada is reportedly tinkering around with distributed ledger technology (DLT) to see if it can facilitate cross-border payment transfers with its branches in the United States. Martin Wildberger, head of innovation and technology, recently told Reuters that utilizing DLT would speed up payments, lessen complexity and reduce costs.
The bank apparently developed a pilot system over the last six months, utilizing software developed by Hyperledger, an open source consortium, hosted by The Linux Foundation, to advance cross-industry Blockchain technologies. RBC used the technology to “shadow” its primary ledger, enabling it to track payments live as they moved across the border.
However, central banks seem to have a more conservative perspective. Officials of the Bank of Canada, the nation’s central bank, and Payments Canada tested an experimental payment system using the technology but concluded it is not yet ready to undergird the entire payment system.
In a recent opinion piece in the Toronto Globe and Mail, officials said there are a few significant obstacles to such a use. One hindrance is the need for privacy around transactions in wholesale payments systems. “This is incompatible with some versions of decentralized digital ledgers – which operate under an assumption that everything is publicly observable at a certain level,” they said. Another issue is scalability, “which is still an issue in some versions of DLT,” the officials added.
At the US central bank, there is also some concern about incorporating distributed ledger technology into the payments system. “Issues of reliability, scalability, and security remain very important,” Federal Reserve Governor Jerome Powell said recently. Additionally, “standardization and interoperability across different versions of DLT will need to be addressed to allow technology integration and avoid market fragmentation.” Governance and risk management is critical too, and the legal foundations supporting DLT will need attention as well.