BIS, Bank of England end DLT settlement pilot
The Bank of England and the Bank for International Settlements (BIS) Innovation Hub London Center have tested a distributed ledger technology-driven settlement system between the institutions. The insights from the project will be used by the Bank of England in its real-time gross settlement system (RTGS).
On 19 April, the BIS published a report on the joint pilot project with the Bank of England called Project Meridian. According to the 44-page document, the banks have successfully bought houses in Wales and England through the synchronization network using distributed ledger technology (DLT).
As the report says, the messages sent between the synchronization network and the RTGS system using APIs provide a generic interface that can be “relatively easily” extended to other asset classes, such as currency. This can reduce the time, cost and risk of transactions.
Project Meridian clearly aims to provide a central bank digital currency (CBDC) settlement system. The report is unequivocal in citing the possible benefits for central banks:
“Synchronization can provide a catalyst for innovation in wholesale payments and support the emergence of new payment infrastructures that settle with central bank money.”
However, there are several reservations about the possible use of the system, concluded in the report’s “Political and operational considerations” section. For example, future network operators will have to think about the mechanics of identity verification. The synchronization services will also be constrained by existing RTGS operating hours at a time when many jurisdictions are considering extending the operating hours of their national payment infrastructures.
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Implementation of the system will raise several legal issues, such as the final point of irrevocability of the settlement, digital representation of assets and prevention of arbitrary use of customers’ funds by commercial banks before a transaction date.
In March, BIS reported the completion of Project Icebreaker, which is exploring international retail and remittance payments for CBDCs with the central banks of Israel, Norway and Sweden. In October 2022, the bank reported that a CBDC pilot involving the central banks of Hong Kong, Thailand, China and the United Arab Emirates was “successful” after a month-long test that enabled $22 million in cross-border transactions.
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