Canada's six largest banks explore tokenized deposits for payments

Bank of Montreal, CIBC, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank Group are jointly exploring a system for tokenized Canadian dollar deposits. The system would allow digital representations of bank deposits to move between financial institutions. According to a joint announcement from the banks, the first phase will focus on transfers between Canadian financial institutions before potentially connecting with other digital asset systems. The project comes less than two weeks after Canada's banking regulator provided additional clarity on tokenized deposits. On Sept. 10, the Office of the Superintendent of Financial Institutions said tokenized deposits are not legally distinct from traditional deposits. OSFI also said the underlying technology of a financial product does not determine its legal nature. Tokenized deposits represent money held at a regulated bank and remain a liability of that bank. Fiat-backed stablecoins are separate digital assets backed by reserves held by their issuer. The banks said the system is intended to support faster and programmable payments. They said longer-term plans include opening the initiative to other deposit-taking institutions. CIBC did not immediately respond to a request for additional details. The initiative comes as Canada develops a broader regulatory framework for digital money. In March, Canada enacted its Stablecoin Act as part of Bill C-15. The act establishes a federal framework for fiat-backed stablecoins issued by non-financial institutions. Covered issuers will be required to register with the Bank of Canada, maintain reserves of at least 1:1 in high-quality liquid assets and offer holders redemption at par. The framework is expected to take effect in 2027. It does not cover fiat-backed stablecoins issued by banks and credit unions that are already subject to prudential regulation. Covered issuers will also be prohibited from representing their stablecoins as deposits or as insured under a public deposit insurance system.