The Bank for International Settlements (BIS), in collaboration with its central bank partners, has successfully demonstrated how wholesale payment infrastructures, such as Real-Time Gross Settlement (RTGS) systems, can interoperate for foreign exchange (FX) transactions through the use of new technologies.
The initiative focused on synchronising the settlement of FX transactions using distributed ledger technology (DLT), ensuring that the transfer of one leg of the transaction (e.g., purchasing a currency) takes place only if the other leg (e.g., selling another currency) is also executed.
Dubbed Meridian FX, the project sought to address several objectives outlined in the G20’s roadmap for enhancing cross-border payments.
These included reducing foreign exchange settlement risk through payment-versus-payment mechanisms, and establishing viable links between the wholesale payment systems of different jurisdictions.
Synchronisation also has the potential to mitigate liquidity and credit risks often associated with FX markets.
The project linked a synthetic version of the UK’s RTGS system with three experimental Eurosystem interoperability solutions: DL3S (developed by the Banque de France), TIPS Hash-Link (from the Banca d’Italia), and the Trigger Solution (created by the Deutsche Bundesbank).
In conjunction with previous work by the BIS and the Bank of England, Meridian FX demonstrates that synchronisation can be “agnostic to both the asset or fund of the transaction involved and the technology of the ledgers,” underlining its possible application across other financial markets.
Featured image credit: edited from freepik
