The Government’s Role in Payment Systems: Lessons from the Canadian Experience

Abstract

Technological and ideological changes have encouraged a reexamination of the regulation of the financial sector in many Western economies, and the regulation of payment services has constituted an important component of that study. Although payment services are used by all economic agents, the details of their functions are not widely understood. Yet an understanding of the current payment system is necessary if improvements are to be instituted. Understanding the payment systems of other nations and other times is also important; although economic theory can suggest the effects of a changing environment, those other systems are the only sources of laboratory-type results. This paper uses historical and contemporary Canadian experience to help illustrate the costs and benefits of government intervention in the payment system.