(Adds details, background, comment from MIT academic)
TORONTO, May 25 (Reuters) - Distributed ledger technology, a new approach for processing transactions that is being widely tested across the financial industry, is not yet mature enough to run a national interbank payment settlement system, the Bank of Canada said on Thursday.
The bank reached that conclusion after a closely watched year-long trial code-named "Jasper," which sought to determine whether the technology, known as DLT, could be used to improve the performance of Canada's wholesale interbank payment system.
Jasper is among dozens of fledgling efforts by financial institutions around the globe to find ways to use DLT, including blockchains at the heart of digital currencies, to boost efficiency, transparency and security of financial transactions. Investors have pumped billions of dollars into startups looking for ways to use DLT, and related blockchain technology, to revolutionize the financial system.
"The bottom line is that a stand-alone DLT wholesale system is unlikely to match the efficiency and net benefits of a centralized system," Carolyn Wilkins, senior deputy governor of the Bank of Canada, and Gerry Gaetz, president of Payments Canada, said in an editorial published in Toronto's Globe and Mail.
Payments Canada, which runs the national interbank payment system that clears more than C$175 billion ($130 billion) a day, helped the central bank conduct the trial with assistance from Canada's largest banks.
The testing uncovered "a fundamental inconsistency or tension" between the centralized nature of a national interbank payment system and the decentralization inherent in DLT, the two officials said in the editorial, the first time they had addressed the outcome of the second phase of project Jasper.
DLT systems post records of data or transactions on multiple computers connected through a common network, which reduces the need for approval from a central authority such as an interbank settlement system.
Christian Catalini, an assistant professor at MIT's Sloan School of Management, said other central banks had been closely following project "Jasper" and noted the Bank of Canada had previously indicated DLT lagged the existing system in providing efficiencies.
"Blockchain is not a solution to every problem," said Catalini. "The potential here is in the future - we're talking five or more years."
Phase two of Jasper, which began in December, tested other concerns involving DLT, such as privacy. It used a distributed database system known as "Corda," developed by the R3 fintech consortium. Some of Canada's largest financial institutions are members.
($1 = 1.3418 Canadian dollars) (Reporting by Solarina Ho; Editing by Dan Grebler and Jim Finkle)