Bank of England and BIS Successfully Complete DLT-Based Payments Pilot

The Bank of England (BoE) and the Bank of International Settlements (BIS) have completed a successful pilot of a payment system based on decentralized ledger technology (DLT) for interbank settlements.

The two banks have been working on a system of payment called real-time gross settlement (RTGS) using DLT. The DLT powers the synchronization network named Project Meridian. The pilot involved using participating banks to facilitate the purchase of homes in England and Wales via synchronization, which happened to be very successful.

A report published by BIS shows that the system shows great promise. “Synchronization can provide a catalyst for innovation in wholesale payments and support the emergence of new payments infrastructures that style using central bank money,” BIS said.

Project Meridian uses central bank money under an existing RTGS system to increase efficiency while reducing risk. The report shows that using APIs to link the synchronization network and the RTGS system makes it possible to integrate into other classes.

“Central banks can use the findings from the project to inform considerations on whether to implement synchronization in their RTGS systems,” the report added.

Apart from settlements, BIS said that the the Meridian prototype can be used for other applications, including streamlining real estate processes, anti-money laundering (AML) checks and Know Your Customer (KYC) checks by relying on a synchronization operator.

UK Open to Crypto Innovation

The UK government under its new prime minister Rishi Sunak has shown its intention to make the country a crypto hub. This became evident when Sunak proposed the launch of a non-fungible token (NFT)  collection for the country. This met resistance from regulators in the country.

Earlier this year, the the Economic Secretary Andrew Griffiths revealed that the government was putting the plan on hold due to concerns on the sustainability of cryptocurrencies. Meanwhile, Sunak had in April 2022 said that he intends to give crypto businesses a favorable environment to enable them invest in the country long term.

The country under Sunak’s government is also aggressively pursuing the idea of a digital Pound which will be a central bank digital currency (CBDC) for use in the country. This is a cause that many top countries such as Russia and China are also pursuing.

Although the UK has strict crypto regulations in place as well, it is more lenient than the U.S in this regard. It is no wonder that Coinbase CEO Brian Armstrong recently said his company was open to relocating outside the U.S when asked if he was considering moving to the U.K.

Crypto A Better Option than Project Meridian

Although the outcome of the pilot was impressive, there seems to be some potential issues with implementing the Project Meridian into the payment system. The first is the legal implication of using the technology which facilitates irrevocable transactions, and the problem of banks using customers’ funds without permission.

The legal concerns may be one of the reasons regulators are careful with crypto adoption, since crypto transactions are also irrevocable. However, financial institutions cannot control users’ funds and only the wallet owner can authorize a transaction, which makes it of less concern that Project Meridian.

RTGS also has a restriction on operating hours, which makes it not suitable for round the clock transactions. Again, this is an advantage that cryptocurrencies have as transactions can be settled at any time of any day in any part of the world.