The Canadian Payments System: Public Policy Objectives and Approaches

Foreword This paper is the second in a series of four background papers prepared by staff of the Bank of Canada and the Department of Finance for discussion by the Payments System Advisory Committee. The Advisory Committee is assisting the Department of Finance in its review of the payments system in Canada. Following from the first paper in the series, entitled The Payments System in Canada: An Overview of Concepts and Structures, this second paper considers the public policy objectives for the payments system, the general approaches to achieving them, and the possible trade-offs among the objectives. The discussion is focused around three broad policy objectives: efficiency, safety, and the consideration of consumer interests in the payments system. The various dimensions of each of these objectives are considered in some detail. The approach to achieving these objectives, which is one based primarily on market forces, is also considered, as is the rationale for possible government intervention in the payments system. The paper also explores the nature of the potential trade-offs among the policy objectives and the conditions under which technical or institutional changes might improve the achievement of at least one objective while avoiding a deterioration in the achievement of the other objectives. The paper provides an illustration, based on a literature review, of the balancing of these policy objectives in retail and wholesale payment systems. Accompanying this discussion paper is a summary of the Advisory Committee's discussions on the issues raised in the paper. These comments are in addition to those directed at the specific structure and content of the discussion paper, many of which have been incorporated in the paper. They provide further insight into the nature of the concerns of participants about public policy objectives for the Canadian payments system and approaches to achieving them.