BIS, Bank of England ends pilot for blockchain international settlement
The Bank of England and the Bank for International Settlements (BIS) Innovation Hub London Center have tested a blockchain-powered settlement system between the central banks. The insights of Project Meridian will be used by the Bank of England in their Real-Time Gross Settlement (RTGS) system.
On 19 April, the official website of the BIS published a report on the joint pilot project with the Bank of England called Project Meridian. According to the 44-page document, banks have successfully completed a house purchase 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 quite unequivocal in citing 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 some reservations about the possible use of the system, concluded in the report’s section “Political and operational considerations”. For example, future operators of the network 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.
Related: CBDCs can provide smooth cross-border payments, Bank of Israel official says
Implementation of the system will raise several legal issues, such as the final point of irrevocable settlement, digital representation of ownership of assets, prevention of arbitrary use of customers’ funds by commercial banks ahead of 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 worth of cross-border transactions.
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