The Bank of England and the Bank of International Settlements (BIS) innovation hub in London have tested a settlement system powered by inter-institutional distributed ledger technology. The Bank of England will use insights from the project in its Real Time Gross Settlement (RTGS) system.
On April 19, the BIS published a report on Project Meridian, a joint pilot project with the Bank of England. According to the 44-page document, the bank has already successfully purchased homes in Wales and England through a synchronized network using distributed ledger technology (DLT). As the report states, the use of APIs to send messages between the synchronous network and RTGS systems provides a common interface that can be extended to other asset classes, such as foreign exchange, "relatively easily." This can reduce the time, cost and risk of transactions.
The Meridian project apparently aims to provide a settlement system for a central bank digital currency (CBDC). The report clearly enumerates the possible benefits for the central bank: "Synchronization could provide a catalyst for innovation in wholesale payments and support the emergence of new payments infrastructure that uses central bank currency for settlement."
However, there are some reservations about the possible use of the system, concluded in the "Political and Operational Considerations" section of the report. For example, future network operators will have to consider authentication mechanisms. Additionally, at a time when many jurisdictions are Considering extending the operating hours of their national payment infrastructures, simultaneous services will be limited by existing RTGS operating hours. Implementing the system raises several legal issues, such as an irrevocable final point of settlement, a own digital resetter as presenter of ial banks from arbitrarily using client funds before the transaction day.
In March, the BIS reported the completion of the Icebreaker project, which is exploring international retail and remittance payment use cases for CBDCs with the central banks of Israel, Norway and Sweden. In October 2022, the bank reported a “successful” CBDC pilot involving The central banks of Hong Kong, Thailand, China and the United Arab Emirates after a month-long test facilitated $22 million in cross-border transactions.
