Project Meridian FX: How EU Central Banks Are Redefining FX Settlement With DLT
Introduction
The Bank for International Settlements (BIS), in collaboration with major EU central banks — including the Bank of England, Bank of France, Bank of Italy, Deutsche Bundesbank, and the European Central Bank — has successfully demonstrated a new frontier in foreign exchange (FX) settlement.
Using distributed ledger technology (DLT), the consortium executed synchronized settlement between different real-time gross settlement (RTGS) systems, offering a glimpse into a future where payment-versus-payment (PvP) mechanisms could eliminate settlement risk and accelerate global FX markets.
This article breaks down Project Meridian FX, its groundbreaking architecture, why it matters for the financial world, and its implications for fintechs, banks, and global payments.
1. What Is Project Meridian FX?
Project Meridian FX is an experimental initiative aimed at:
- Synchronizing settlement of FX transactions across different payment systems.
- Using technology-neutral interfaces to link traditional RTGS platforms with DLT networks.
- Achieving payment-versus-payment (PvP) — ensuring one currency is delivered only if the counter-currency is also delivered.
Key participants:
- Bank of England (UK RTGS)
- Bank of France (DL3S DLT platform)
- Bank of Italy (TIPS Hash-Link DLT platform)
- Deutsche Bundesbank (Trigger Solution DLT platform)
- European Central Bank
- BIS Innovation Hub
Core mechanism:
A synchronization operator — an independent, ledger-agnostic interface — orchestrates the simultaneous transfer of assets between systems.
2. Why Synchronized FX Settlement Matters
A. Eliminating Settlement Risk (Herstatt Risk)
Historically, FX settlement risk has been a major pain point:
- One party pays out one currency without guaranteed receipt of the counter-currency.
- This risk is called Herstatt risk (after the 1974 collapse of Herstatt Bank).
Project Meridian FX directly tackles this by ensuring atomic settlement:
Either both legs settle, or neither does.
B. Boosting Efficiency
Traditional FX settlement across multiple clearing systems is:
- Slow (hours to days)
- Expensive (multiple intermediaries)
- Operationally complex
Synchronised DLT-based settlement:
- Reduces processing times dramatically.
- Cuts reliance on correspondent banking networks.
- Lowers operating costs.
C. Future-Proofing Against DLT Finance
As tokenized assets (CBDCs, digital bonds, stablecoins) grow, traditional payment systems must adapt.
Meridian FX proves that legacy infrastructures (like RTGS) can interact with future-ready DLT systems without needing a complete overhaul.
3. Technical Architecture: How It Works
i. Synthetic RTGS Connections
The project connected a synthetic UK RTGS system to:
- DL3S (Bank of France’s DLT)
- TIPS Hash-Link (Bank of Italy’s DLT extension)
- Trigger Solution (Deutsche Bundesbank’s DLT tool)
ii. Synchronization Operator
This interface:
- Monitors both legs of a transaction.
- Releases transfers only if both conditions are met.
- Operates independently of underlying ledger technologies.
iii. Additional Features Tested
- Liquidity-saving mechanisms: Reducing the funds needed for settlement.
- User-defined transaction rules: Approval limits, timing rules, counterpart eligibility.
4. Implications for the Financial Ecosystem
A. Central Banks: Preparing for a Multi-Platform World
- RTGS systems must adapt to interact with tokenized financial assets.
- Future FX markets may run on interoperable layers, combining traditional finance (TradFi) and decentralized finance (DeFi).
B. Commercial Banks: New Risk and Opportunity Profiles
- Less settlement risk = better capital efficiency.
- New FX operating models based on DLT = new service models (instant FX swaps, tokenized cross-currency payments).
C. Fintechs: New Rails for FX Innovation
Fintechs could:
- Build instant FX trading platforms linked to multiple settlement systems.
- Offer cross-border payment solutions with near-zero settlement risk.
- Create new liquidity management products for corporates and treasurers.
D. Global Payments Networks: Urgent Need for Interoperability
Global networks (Swift, Visa B2B Connect, RippleNet) will need to ensure their systems are synchronization-ready to remain relevant.
5. Key Challenges Ahead
A. Standardization and Governance
- How will synchronization operators be governed internationally?
- Will multiple countries trust a shared operator?
B. Legal and Regulatory Complexities
- Different jurisdictions have different settlement finality laws.
- DLT transactions raise questions about dispute resolution and asset ownership.
C. Cybersecurity Risks
- Synchronization operators become critical systemic nodes — and thus attractive cyberattack targets.
- Stronger cyber-resilience frameworks are mandatory.
D. Scaling Across More Assets and Jurisdictions
- While FX is the focus, applying similar models to securities, derivatives, and commodities is vastly more complex.
6. Strategic Takeaways for Fintechs and Payments Players
- Monitor Central Bank Digital Currency (CBDC) pilots closely — these will drive adoption of synchronized settlement techniques.
- Invest in ledger-agnostic technologies — future systems will need to interact across RTGS, DLT, and private ledgers.
- Prepare for liquidity innovation — FX settlement will no longer require massive pre-funding or long netting cycles.
- Think modular — Payments orchestration layers that can “plug and play” across assets and networks will be winners.
Conclusion
Project Meridian FX proves that synchronized FX settlement across disparate payment systems using DLT is not just theory — it’s technically achievable.
For fintechs, banks, and payment companies, it marks the beginning of a new settlement paradigm:
Fast, atomic, and interoperable across technologies.
As more central banks integrate DLT capabilities, expect next-generation global payment systems that are more secure, efficient, and resilient — reshaping everything from corporate treasury to cross-border remittances.
The question is no longer if synchronized settlement will happen — it’s how fast players can adapt to it.
FAQs
Q1: What is the Synchronization Operator in Project Meridian FX?
It is a technology-neutral interface that ensures the simultaneous (atomic) settlement of two legs of an FX transaction across different systems.
Q2: Can this model be used outside FX transactions?
Yes, the project findings suggest that the synchronization model can work for securities, commodities, and other digital assets.
Q3: What is the biggest risk in DLT-based synchronized settlement?
Governance complexity and cybersecurity vulnerabilities are among the top risks central banks and FIs must address.
