The Bank of England and BIS successfully completed Project Meridian, a DLT-based pilot for CBDC settlement systems.
The Bank for International Settlements (BIS) Innovation Hub London Center and the Bank of England have successfully completed a pilot project, leveraging distributed ledger technology (DLT) for settlements between the institutions. Termed Project Meridian, the insights gained from this endeavor are set to be utilized by the Bank of England in refining its real-time gross settlement (RTGS) system.
On April 19, BIS released a comprehensive report, shedding light on the 44-page document detailing the accomplishments of Project Meridian. The pilot project involved purchasing properties in England and Wales through a DLT-driven synchronization network. By employing APIs for communication between the RTGS system and the synchronization network, a generic interface was established, which could be readily expanded to encompass other asset classes like foreign exchange. This groundbreaking system holds the potential to substantially diminish the time, costs, and risks associated with transactions.
Project Meridian Targets CBDC Settlement Systems
Project Meridian primarily aims designed to create a settlement system tailored for central bank digital currencies (CBDCs). The report emphasizes the potential advantages that synchronization can offer central banks. It has the capacity to spur innovation in wholesale payments and facilitate the development of new payment infrastructures relying on central bank money. The adoption of this pioneering system could transform the transaction landscape, leading to enhanced efficiency and cost-effectiveness.
However, the report also highlights numerous political and operational considerations that could hinder the widespread implementation of this system. For instance, future network operators will need to tackle the complexities of identity verification processes. Additionally, the availability of synchronization services will be confined by the current RTGS operating hours. That might pose a challenge to jurisdictions that are contemplating the extension of their national payment infrastructures’ operating hours.
Legal Implications Surrounding the Adoption of DLT Settlements
The introduction of the DLT settlements system raises several legal questions that someone must address prior to achieving widespread adoption. Key concerns include establishing the final point of settlement irrevocability, creating a digital representation of asset ownership, and implementing measures to prevent commercial banks from arbitrarily using clients’ funds before a transaction date. To guarantee the system’s security and integrity, it is crucial to thoroughly examine and resolve these legal aspects.
In recent times, BIS has been proactively exploring the possibilities of CBDCs. In March, they reported the successful completion of Project Icebreaker. The latter is a collaboration with the central banks of Israel, Norway, and Sweden, aimed at examining international retail and remittance payment use cases for CBDCs. Additionally, in October 2022, the bank announced the triumphant conclusion of a CBDC pilot. That involved the central banks of Hong Kong, Thailand, China, and the United Arab Emirates. This pilot facilitated $22 million worth of cross-border transactions throughout a month-long testing phase.