Canada's biggest banks team up on tokenized deposits

• Key insight: Canada's six largest banks announced a joint Canadian dollar tokenized deposit project 12 days after the country's bank regulator said tokenized deposits are not legally distinct from ordinary deposits.
• What's at stake: Five of the six banks own U.S. insured banks, so a Canadian experiment in moving deposits over a blockchain is being run by institutions that also hold American deposits.
• Forward look: The Bank of Canada found after its own tokenized bond experiment that "broader adoption will likely be slow," citing integration challenges and limited appetite for changing core infrastructure.

Overview bullets generated by AI with editorial review.

Canada's six largest banks are joining forces to put the Canadian dollar on a blockchain, and two of them are already helping build an American version.

Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank Group said Tuesday they are "jointly exploring" Canadian dollar digital money, starting with tokenized deposits.

The first phase aims "to move tokenized deposits efficiently across Canadian financial institutions," the statement said, and other institutions may join later.

Five of the six own U.S. banks holding roughly $805 billion in assets as of June 30, according to Federal Deposit Insurance Corp. data.

What a tokenized deposit is

A tokenized deposit is a claim on money held at a licensed bank, recorded on a distributed ledger rather than only on the bank's own books.

A distributed ledger is a shared, cryptographically secured database, similar to the ledgers that underpin cryptocurrencies.

The money claimed by a tokenized deposit stays a liability of the bank that issued it. In other words, it is an ordinary deposit in a different wrapper. It can move at any hour and carry programmable instructions without leaving the banking system.

Why now

Until this month, Canada's bank regulator had not said how it would treat tokenized deposits. That changed on Sept. 10.

Tokenized deposits are "not legally distinct from traditional deposits," Canada's bank regulator, the Office of the Superintendent of Financial Institutions, or OSFI, said in a statement that day.

"The underlying technology of a financial product or service does not determine its legal nature," the OSFI statement said. "To be clear, we focus on what the product or service is, not how it is built or delivered."

The FDIC has proposed much the same conclusion as part of a rulemaking process following the GENIUS Act, the 2025 stablecoin law.

The agency proposed treating tokenized deposits that satisfy the legal definition of a deposit "no differently under the Federal Deposit Insurance Act than any other types of deposits," according to an April 7 announcement about its proposed rules that would implement the GENIUS Act.

The FDIC has not said when it will issue a final rule. The GENIUS Act takes effect on Jan. 18, 2027, or 120 days after federal regulators finish their rules, whichever comes first, according to the proposal.

The same banks are building an American version

The Clearing House said in June it would clear and settle tokenized deposits between banks and connect that activity to its RTP instant payments network and to CHIPS, which settles large transfers between banks.

BMO and TD are helping build both that network and the Canadian one.

The Clearing House initiative would enable "seamless, real-time movement of tokenized deposits across institutions," said Darrel Hackett, BMO Financial Group's U.S. chief executive, in the June 5 announcement.

The Clearing House was still designing the network in August, according to a post on its website.

The Clearing House's network is not the only American effort. JPMorganChase issues a deposit token; Wells Fargo will open tokenized deposits to corporate clients this fall; and the Cari Network is building an interoperable network for regional and community banks.

Whether the Canadian network will connect to the American one is unclear; the Tuesday statement set a longer-term goal of connecting with "other emerging digital assets initiatives" but named none.

The Canadian project has a regulatory head start on the Clearing House's; OSFI has settled the legal question that the FDIC has so far only proposed to answer.

Why deposits, not stablecoins

The higher-profile sibling to a tokenized deposit is a stablecoin — a digital currency whose value is pegged to a fiat currency. A stablecoin usually carries no claim on a bank deposit; an issuer instead backs it with a pool of reserve assets.

The GENIUS Act gave American banks a road map to issuing stablecoins (although the rules are still being finalized). By contrast, Canadian banks looking to issue stablecoins have no legal road map to do so.

Canada's parliament passed the Stablecoin Act in March, but the law is not in effect, and it carves out banks anyway; the act "does not apply to an issuer that is a financial institution," the law reads.

That leaves a Canadian bank that wants to issue a stablecoin without a clear rulebook.

That has not stopped a Canadian dollar stablecoin from reaching the market. Tetra Digital Group launched one called CADD in May. (The National Bank of Canada is among the company's investors.)

Still, tokenized deposits have a clear set of rules in Canada (the same set that already governs deposits). Stablecoins do not.

What the banks are not saying

The Tuesday announcement named no technology partner, no timeline, no governance entity and no role for Payments Canada, which runs the country's core payment systems.

Spokespeople for five of the six banks redirected American Banker to the 170-word press release. The National Bank of Canada did not respond to a request for comment.

Before the journey into tokenized deposits began on Tuesday, an earlier foray into tokenized assets yielded milquetoast results.

The Bank of Canada, RBC, TD and Export Development Canada completed Project Samara in March, settling Canada's first tokenized bond, worth 100 million Canadian dollars, in wholesale central bank deposits, the accounts commercial banks hold at the Bank of Canada.

The central bank came to a measured verdict; efficiency gains were "partially offset by system complexity, liquidity costs," and "the need for new governance structures," the Bank of Canada said in announcing the results.

Despite the tokenized bond tech working, "broader adoption will likely be slow due to several factors, such as integration challenges and limited appetite for core infrastructure changes," the central bank said.