Bank of England and BIS wrap up DLT-based settlements pilot with stellar results

The Bank of England (BoE) and the Bank for International Settlements (BIS) have concluded their pilot into a distributed ledger technology-based system for interbank settlements.

Both institutions have been exploring an innovative real-time gross settlement (RTGS) system using distributed ledger technology (DLT) to power the synchronization network dubbed Project Meridian. According to a final report published by BIS, the experiments showed significant promise as participating banks were able to facilitate the purchase of homes in England and Wales via synchronization.

Project Meridian involves using central bank money under an existing RTGS system to increase efficiency while reducing risk. Per the report, APIs are used to link the synchronization network and the RTGS system in a way that could be integrated into other classes.

“Synchronization can provide a catalyst for innovation in wholesale payments and support the emergence of new payments infrastructures that style using central bank money,” BIS said.

“Central banks can use the findings from the project to inform considerations on whether to implement synchronisation in their RTGS systems,” the report read.

The BIS notes that the Meridian prototype offers many benefits beyond settlements, including streamlining real estate processes. Using synchronization networks, asset market participants can efficiently carry out anti-money laundering (AML) and Know Your Customer (KYC) checks by relying on a synchronization operator.

Despite the array of benefits, integrating the findings from Project Meridian into the payment system appears to be an arduous task, given the array of existing challenges. Regulators will have to grapple with various legal questions, including the final point to the irrevocability of the settlement and the ethical challenge of financial institutions using clients’ funds without authorization.

Another challenge against synchronization is the restriction posed by RTGS operating hours. The report suggests that “extending RTGS operating hours could increase opportunities for synchronisation, especially for cross-border payments.”

BIS on a roll

The BIS is basking in the warmth of a red-hot streak after completing several pilots designed to promote cross-border payments. Back in March, it rounded up Project Icebreaker, a study involving the central banks of Israel, Sweden, and Norway that delved into international retail use for central bank digital currencies (CBDCs).

A similar study was concluded in 2022 and racked positive reviews after notching $22 million worth of cross-border transactions after 30 days. Dubbed Project mBridge, the BIS roped in the banking regulators and commercial banks from Hong Kong, China, Thailand, and the United Arab Emirates (UAE).