BIS Claims Success for Project Meridian FX

The Bank for International Settlements says that it, with its central bank partners, has successfully demonstrated how wholesale payment infrastructures, such as RTGS (real-time gross settlement) systems, can interoperate with each other for FX transactions via new technologies. 

The project involved synchronising the settlement of FX transactions, using distributed ledger technology, so that the transfer of one leg of the transaction (such as buying a currency) happens only if the transfer of the other (such as selling another currency) occurs.

Meridian FX sought to address some of the actions called for in the Group of 20 cross-border payments roadmap. For example, reducing FX settlement risk using payment-versus-payment transactions and establishing realistic links between the wholesale payment infrastructures of different countries.

At the heart of Project Meridian FX is the synchronisation operator – a technology-neutral interface designed to coordinate the simultaneous exchange of assets across payment systems. Through the experiments conducted, synchronisation operators enabled atomically settled FX transactions between different wholesale payment infrastructures across jurisdictions, and between an RTGS system and a DLT platform.

The BIS says synchronisation could also mitigate some of the liquidity risk and credit risk challenges in the FX market. The project also explored additional functionalities, including liquidity-saving mechanisms and user-defined transaction rules, such as approval limits.

The project connected a synthetic version of the UK RTGS system to three experimental Eurosystem interoperability solutions: DL3S (developed by the Bank of France), TIPS Hash-Link (developed by the Bank of Italy) and the Trigger Solution (developed by the Deutsche Bundesbank).

“Combined with the results of previous work undertaken by the BIS and the Bank of England, Meridian FX shows that synchronisation can be agnostic to both the asset or fund of the transaction involved and the technology of the ledgers, highlighting its potential use in other markets,” the BIS states. 

The news was welcomed by Basu Choudhury, head of trade lifecycle strategy at Osttra, which operates a PvP settlement orchestration service, he says, “Project Meridian FX is a significant step forward in demonstrating how PvP can be enabled for cross border payments where new technology and interoperability protocols removes the limitations on traditional RTGS systems. This proves that synchronisation isn’t just a concept and an important piece in the jigsaw puzzle toward reducing systemic settlement risk in global FX markets. It aligns with much of the work we’ve been doing to link the full end-to-end ecosystem (matching, golden record, netting, settlement orchestration) and expand horizontally to new settlement venues both central bank systems and tokenised commercial bank offerings.”