The Bank of England and the Bank for International Settlements (BIS) Innovation Hub London Center have tested a blockchain-powered central bank settlements system. The Bank of England will apply Project Meridian’s findings in its Real-Time Gross Settlement (RTGS) system.
On April 19, the BIS’s official website issued a report on initiative Meridian, a collaborative pilot initiative with the Bank of England. According to the 44-page paper, banks have successfully purchased homes in Wales and England utilizing distributed ledger technology (DLT) via the synchronization network.
The messages delivered between the synchronization network and the RTGS system utilizing APls, according to the research, provide a general interface that may be “relatively easily” expanded to other asset classes, such as foreign currency. This might cut transaction time, costs, and dangers.
Meridian’s stated goal is to create a settlement system for central bank digital currencies (CBDC). The paper is emphatic in stating the potential benefits for central banks:
“Synchronization can provide a catalyst for innovation in wholesale payments and support the emergence of new payments infrastructures that settle using central bank money.”
However, there are some issues regarding the application as stated in the “Political and operational considerations” part of the report. Future network operators will need to consider the mechanics of identity verification. Furthermore, the synchronization services would be constrained by current RTGS operation hours, at a time when several jurisdictions are exploring extending the running hours of their national payment infrastructures.
Implementing the system would pose various legal issues, including the ultimate point of irrevocability of the settlement, digital representation of asset ownership, and the prevention of commercial banks using customers’ cash arbitrarily in advance of a transaction date.
BIS Involved in Other Pilot Tests
The bank for International Settlements (BIS) has been involved in multiple projects in the past. BIS said in March that Project Icebreaker, which investigated international retail and remittance payments use cases for CBDCS with the central banks of Israel, Norway, and Sweden, had been completed. The bank claimed in October 2022 that a CBDC pilot including the central banks of Hong Kong, Thailand, China, and the United Arab Emirates had been “successful” following a month-long test that enabled $22 million in cross-border transactions.
