Large Value Transfer System (LVTS) - Everything You Need to Know
Learn about the Large Value Transfer System (LVTS) in Canada and its hybrid system of handling payments efficiently.
The LVTS (Large-Value Transfer System) was undoubtedly one of the soundest and most reliable payment systems that served Canadians for over 20 years. Essentially, this model was the first of its kind in the world and was a hybrid that handled payments efficiently.
This article discusses the meaning of the LVTS, its uniqueness, as well as other details you should know about it.
What Is the Large Value Transfer System?
The LVTS, short for large value transfer system, was an electronic/digital wire payment system in Canada that facilitated the transfer of money between large financial institutions/banks, including the Central Bank of Canada. It was established in 1999 and was shut down and replaced by Lynx in 2021.
Essentially, this system was equivalent to a real-time gross settlement (RTGS). With this system, payments were not resolved in real time but are resolved the same day they were processed, in the evening. This makes LVTS payments virtually instantaneous.
Before it was replaced, the large value transfer system (LVTS) processed most payments initiated in Canada and handled all money in Canadian dollars (CAD). On a regular business day, the LVTS cleared and settled approximately 28,000 payments one-day worth of CAD $153.5 billion. Until it was replaced, it hosted about sixteen Canadian banks, including the Bank of Canada.
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What Made the LVTS Unique?
The LVTS was the first payment model of its kind to be launched in the world. It was a hybrid system that integrated the benefits of the two major models for current payment systems. The system attained the real-time payment entirety of a Real-Time Gross Settlement (RTGS) system, alongside the added advantage of lower collateral costs related to a netting system.
The inception of the LVTS was a monumental landmark for the whole of Canada’s payment ecosystem. The lower residual threat due to the assurance of payment settlement and intraday entirety helped to enhance the safety and all-around soundness of the financial system in Canada.
The stability and reliability of the large value transfer system could also be noticed in the way the system solidly supported the needs of Canadians in periods of crisis. During crises like 9/11, the Global Financial Crisis of 2008, the Northeast Blackout of 2003, and even the most recent COVID-19 pandemic in 2020, the LVTS never failed. It continued to process real-time payments for Canadians in a reliable and efficient way.
What are the Benefits of LVTS Transactions?
Here are some of the unique benefits of the LVTS payment system:
1. Transactions with the system were instant, which enhances the speed and efficiency of all business transactions.
2. Once a transaction is executed through this system, it cannot be reversed. Basically, this stops fraud and prevents insufficient funds.
3. Since payment settlements through this system are assured and irreversible, the system decreases the all-around systemic threat to the Canadian economy.
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What was the LVTS Replaced With?
The LVTS was replaced with Lynx in 2021. Basically, Lynx provides the Bank of Canada with a setting to conduct its monetary policy. It became effective in September 2021, replacing the Large Value Transfer System (LVTS). The Lynx inherits the operative functions to:
- Strengthen the Bank of Canada’s policy interest rate
- Provide a standard for settling responsibilities from other financial market infrastructures (FMIs)
- Channel liquidity from the Bank of Canada to other financial institutions during times of crisis
Bottom Line
The large value transfer system (LVTS) was an excellent and reliable payment system that served Canadians unfailingly for numerous years. However, this payment system has now been replaced by a more reliable and modernized one. As part of the payments modernization efforts in Canada, the Large Value Transfer System (LVTS) was replaced with Lynx in 2021.
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