On April 19, 2023, the Bank of England and the Innovation Hub London Center of the Bank for International Settlements (BIS) published a report on Project Meridian, a successful joint pilot project. The project tested a distributed ledger technology-based system for inter-institutional settlements, which the Bank of England will apply to its real-time gross settlement (RTGS) system.
The research revealed that the synchronization network, which utilized distributed ledger technology (DLT), and the RTGS system could communicate through API-enabled connections. This interface can easily include other asset classes like foreign currency and result in faster transactions and reduced expenses and risks.
Project Meridian’s goal is to provide a framework for central bank digital currency (CBDC) settlement. The research suggests that synchronization can serve as a catalyst for innovation in wholesale payments, facilitate new payment infrastructures settling with central bank money, and offer potential advantages for central banks.
However, the report also highlights several reservations about the potential application of the system. Future network administrators will need to consider technical aspects related to identity verification, and synchronization services would be constrained by the current RTGS operating hours.
The implementation of the system would raise several legal issues, including the irrevocability of the ultimate point of settlement, the digital representation of asset ownership, and the prevention of commercial banks’ arbitrary use of customers’ funds before the transaction date.
In October 2022, the bank announced the successful completion of a CBDC trial involving the central banks of Hong Kong, Thailand, China, and the United Arab Emirates. The trial facilitated $22 million in international transactions. The Bank for International Settlements (BIS) also announced on February 7, 2023, that it would increase its focus on testing Central Bank Digital Currencies (CBDCs) in 2023 through its Innovation Hub, aiming to improve payment systems.
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