On 19th April, the Bank of England completed the test of distributed ledger technology (DLT) to process large bank-to-bank transactions. Under Project Meridian, the Bank of England investigated how recent fast advancements in the fintech industry could deliver innovations in the real-time gross settlements (RTGS) systems operated by central banks.
The Central Bank started “Project Meridian” which was put through the Bank for International Settlements (BIS) by the Bank of England. The aim behind the project was to make a prototype that could fast pace and reduce the costs of transactions in central bank RTGS. According to the reports, synchronization is achieved by the emergence of a new entity called a synchronization operator. This operator would interlink real-time gross settlements (RTGS) systems with other financial market infrastructures (FMIs).
For those who are not aware, the Bank of International Settlements (BIS) provides central banks and financial regulatory bodies a forum for communication and collaboration. Through this Central banks may openly exchange information, create a shared understanding, and choose a common course of action.
According to a report released by the BIS, clients will now have more transparency in the funds’ transfer and reduced time than before. In the report, it’s mentioned that funds are transferred from a buyer to a seller only if the corresponding asset on the other side moves at the same time from the opposite direction. Additionally, it will also help in reducing the cost of transactions, time, and risks like funds stuck. A network of nodes is responsible for maintaining distributed ledgers. Each node holds a copy of the ledger, checks the data, and contributes to the consensus on its accuracy.
In February 2023, the Bank of England’s deputy governor, Jon Cunliffe warned that the digital ledger technology (DLT) is too clunky to rely on. He also claimed that DLT suffers from some real challenges in scalability.
However, the project experimented where funds transferred from buyer to seller only if a real estate registry moved from the other end. But it can be applied to other domains like equities, bonds, and other assets. Project Meridian is currently in its nascent stages, to implement a comprehensive policy that can facilitate the usage on the ground.
