“FinTech” has become the buzz word in the financial services industry. It encompasses all the emerging and latest technologies that have the potential to disrupt financial sector as a whole.

In a recent speech, Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada, emphasized on the need to filter out the hype surrounding fintech and explored its potential to transform financial system across a broad range of services.

Wilkins also touched upon the topic of bitcoin and blockchain technologies. She said that the key benefit of blockchain or distributed ledger technologies (DLTs) is that it eliminates the need for a trusted third party to guard against double-spending or expensive processes to reconcile information between ledgers.

“The best-known application of DLT is Bitcoin, which is a decentralized digital currency. The ledgers used for these currencies are “permissionless,” which means that anyone with a computer can download the software, see the ledger and start authorizing transactions”, Wilkins said. “The decentralized aspect of the technology is why some predict that widespread application of DLT could revolutionize entire industries”.

She believes that it is highly unlikely that state currencies will be replaced by decentralized digital currencies. Wilkins argues that people have not widely embraced digital currencies such as bitcoin because these currencies cannot outperform the competition when it comes to serving as a store of value and a medium of exchange.

“National authorities will want to run their own monetary policy, and so the most that could happen is that national currencies and digital currencies coexist”, she added.

To that end, Wilkins noted that the Bank of Canada is closely studying digital currencies because of its role in issuing the nation’s currency and the implications these currencies could have for monetary policy and financial stability. The BoC recently revealed that it has begun experiments with ‘CAD-Coin’ – its digital fiat currency.

However, she emphasized on the potential of DLT saying that the technology is stronger for applications outside of digital currencies. She noted that one such area is the syndicated loan market where the DLT could reduce the time taken for clearing and settlement processes from 20 days to 7 days. Wilkins added the technology could also see applications in trade finance and supply chains. However she added:

“Several important issues with DLT must be resolved before its benefits can be realized. First on the list are technical issues related to scalability, the consensus mechanism, data privacy and cyber security. Second, proponents will have to agree on governance, which can be a challenge when stakeholders have divergent interests...Finally, standards and protocols, as well as a solid legal foundation, must be established to allow for interoperability.”

Wilkins noted that financial institutions, including Canadian banks, are working hard to test and adopt new technologies and adjust to new trends, adding:

“So while banks may look different in the future, they will still play a major role in the financial system.”