Distributed Ledger Technology Experiments in Payments and Settlements (IMF Fintech)

Summary

• Central banks in Brazil, Canada, the Euro Area/Japan, Singapore, South Africa, and Thailand have conducted large-value interbank payment DLT experiments.p.10
• All reviewed projects concluded that DLT is to some extent feasible for large-value payment system infrastructures, though concerns remain over maturity and interoperability.p.8
• In securities settlement testing, one project in Australia aimed for production implementation in 2021.p.12
• CLSNet was launched by CLS Bank International in 2018 as a DLT-based bilateral netting service for foreign exchange trades in emerging market currencies.p.13
• Standard recovery time objectives require operations to resume within 2 hours following disruptive operational or cyber incidents.p.16
• More than 200 market infrastructures use SWIFT, while about 11,000 institutions across 200 countries and territories connect to its network.p.17

Key insights

1. Permissioned DLT networks are considered the only suitable setups for financial market infrastructures due to compliance and regulatory requirements.p.11
2. Prototypes confirmed DLT feasibility for transaction booking, but proof-of-work protocols were deemed unsuitable for large-value payment systems due to processing capacity and lack of privacy.p.11
3. Securities settlement experiments demonstrated that delivery-versus-payment with settlement finality is achievable within DLT-based systems.p.12
4. Moving to real-time immediate settlement could increase intraday liquidity needs and accelerate bank-run risks during financial stress events.p.16
5. A true real-time settlement environment would eliminate naked short selling by requiring verified asset and fund availability prior to trade execution.p.16
6. The CPMI-IOSCO Principles for Financial Market Infrastructures are technology neutral and applicable to DLT setups, though bilateral settlements may require new interpretations.p.17
7. Interoperability between DLT systems and legacy infrastructures, as well as across different distributed ledgers, is critical to avoid fragmentation risk.p.17