BIS and the Bank of England tested a platform for inter-institutional settlements based on distributed ledger technology DLT. The results of Project Meridian will help improve the regulator’s RTGS system.
Synchronising the change in asset ownership to the respective change in funds eliminates the risk of one side not delivering, also reducing liquidity and transaction costs. Project Meridian shows how it can be done: https://t.co/Vcufu7toTi#BISInnovationHub @bankofengland pic.twitter.com/KWW2hhZgW1
— Bank for International Settlements (@BIS_org) April 19, 2023
According to the document, as part of the pilot banks acquired homes in Wales and England.
Messages sent between the synchronisation network and the RTGS system using API messages provide a common interface. It is "relatively easy" to extend it to other asset classes such as foreign currencies. As a result, settlement times, costs and transaction-related risks are reduced, the report says.
The pilot project could serve as a basis for a settlement system using CBDC.
"Synchronization could be a catalyst for innovation in wholesale payments and support the emergence of new infrastructures using national digital currencies," — the document says.
The authors note the challenges that may arise in using the system.
In particular, a mechanism for identity verification will need to be provided. Additional factors could include restrictions on RTGS operating hours, as many jurisdictions consider revising the timetable of national payment infrastructures.
The implementation of the system may also raise a range of legal questions such as the final point of no return for settlements, the digital representation of ownership rights to assets, and preventing the arbitrage of client funds by commercial banks until the transaction date.
In March 2023, BIS completed Project Icebreaker, aimed at creating a cross-border retail payment system for CBDC.
Earlier, Bank of America analysts stated that central bank digital currencies could fundamentally transform global finance.
Back in April, media reported plans by the Bank of England to form a team of 30 specialists for CBDC development.
Previously, regulator spokeswoman Katie Forchun allowed the existence of an ecosystem of various forms of money, including national digital currencies and stablecoins.