England successfully conducts DLT-based foreign exchange peer-to-peer trials in collaboration with three European central banks.
The BIS Innovation Hubs in London and Europe have completed a joint Distributed Ledger Technology (DLT) project called Project Meridian FX. The initiative, led by the central banks of England, France, Germany, and Italy, has successfully demonstrated that Payment versus Payment (PvP) can work across different technological infrastructures, including both DLT and non-DLT systems.
The project built on the London Hub's Project Meridian trial for real estate settlement, focusing on cross-border payments. The trial utilised a DLT-based synchronization solution to simultaneously transfer a property title and payment. In the case of Project Meridian FX, the aim was to simultaneously exchange pounds and euros.
The project introduced a new feature called (PvP)+(PvP), which allows for multiple linked PvP transactions involving different currencies and a bridging currency. This innovation could potentially integrate commercial and central bank money on DLT platforms, leading to faster, more transparent, and lower-cost cross-border transactions.
However, challenges were identified, including the need for enhanced cross-border supervisory visibility, harmonized identifiers, and coordinated regulatory oversight to fully realize the benefits of these innovations in global financial markets.
The synchronization system on the Ethereum-compatible DLT platform has a synchronization operator that controls the payment queue. The system also explored liquidity optimizations, such as prioritizing payments of banks with transactions in one direction and using incoming payments to fund outgoing ones.
The trial used a DLT-based synchronization solution to simultaneously transfer a property title and payment, testing interoperability with a DLT-based system and a non-DLT based one. This work aligns with global efforts to make cross-border payments faster, cheaper, and safer through innovation.
Each participating European central bank used a different platform for the trial: Germany used its Trigger Solution, France used DL3S, and Italy used TIPS Hashlink. The project demonstrates the synchronization solution's versatility and its ability to work with a variety of technologies and assets.
In summary, Project Meridian FX demonstrates the viability and benefits of PvP on DLT for cross-border FX settlement, while also emphasizing the regulatory and supervisory frameworks needed to support such innovations at scale. The project aligns with the broader goals of the BIS Innovation Hub to promote public goods such as next-generation financial market infrastructures incorporating CBDCs, improved cybersecurity, and green finance solutions, all aimed at enhancing the safety and effectiveness of international financial systems.
[1] Source: BIS Innovation Hub, Project Meridian FX: Combining Cross-Border Payments and Settlement Finality with Distributed Ledger Technology, 2021.
- The Project Meridian FX, built on the success of the London Hub's Project Meridian trial, introduces the concept of PvP+PvP, a feature that enables simultaneous exchange of multiple currencies, including the British pound and euro, using a DLT-based synchronization solution.
- The trial, which involved the use of various DLT platforms by European central banks, showcases a versatile synchronization solution capable of working seamlessly with different technologies and assets, potentially integrating commercial and central bank money on DLT platforms.
- The BIS Innovation Hub project aligns with broader goals of promoting next-generation financial market infrastructures, such as those incorporating Central Bank Digital Currencies (CBDCs), improved cybersecurity, and green finance solutions, to enhance the safety and effectiveness of international financial systems.
