The Bank for International Settlements (BIS) Innovation Hub, in collaboration with the Eurosystem and the Bank of England, has launched Project Meridian FX to test synchronized settlement for foreign exchange (FX) transactions.

BIS Innovation Hub Launches Project Meridian FX to Test Synchronized FX Settlement

Building on the findings of the initial Project Meridian, this new initiative aims to enhance the efficiency and innovation in wholesale payments.

Project Meridian FX will leverage the concept of a "synchronization operator" (SO) developed in the first phase of Project Meridian. The SO acts as an intermediary to orchestrate the settlement of payment versus payment (PvP) FX transactions across different real-time gross settlement (RTGS) systems and distributed ledger technology (DLT) platforms.

"By focusing on FX transactions, the project could also offer potential solutions to long-standing issues in settling FX trades, such as the costs, risks and time involved in cross-border transactions," the BIS commented in a press release.

The #BISInnovationHub Project Meridian FX will demonstrate how RTGS operators could enable interoperability between their systems and new technologies such as DLT, while offering innovative solutions to challenges in FX transactions. Read more here https://t.co/w3FoQ0HYeS pic.twitter.com/k8Vu28LWB1

— Bank for International Settlements (@BIS_org) June 14, 2024

The project will conduct experiments connecting the SO to three solutions being explored as part of the Eurosystem's broader work on wholesale settlement: Deutsche Bundesbank's trigger solution, Banca d'Italia's TIPS Hash-Link, and Banque de France's DL3S DLT interoperability solution.

Through these experiments, Project Meridian FX aims to provide insights on how RTGS system operators can enable interoperability with emerging payment technologies and unlock more innovative settlement services for a wider range of assets settled in central bank money.

The experiments are scheduled to take place towards the end of 2024, with findings expected to be reported in Spring 2025. The project's outcomes could pave the way for more efficient and secure cross-border FX settlement.

Forex OTC Derivatives Experience Significant Growth in 2023

The Forex market has exhibited robust growth in 2023, as detailed in a recent report by the BIS, which summarizes the FX OTC derivatives for the year. Notably, the notional value of outstanding contracts increased by 8% year-over-year, totaling $667 trillion. This surge was predominantly fueled by an 8% growth in interest rate derivatives, which reached $530 trillion, and a 10% rise in foreign exchange derivatives, escalating to $118 trillion.

This 8% overall increase reflects the largest annual growth since 2017 and underscores a dynamic market expansion. This progression is consistent with the findings from six months earlier, when BIS last reported updates on OTC derivatives, indicating a year-on-year growth of $49 trillion, or 8%.

Outstanding over-the-counter derivatives grew by 8% in 2023, driven mainly by interest rate derivatives. They rose by 17% in the first half and declined by 8% in the second #BISStatistics https://t.co/HN7eFMSQLw pic.twitter.com/73RWfLKonG

— Bank for International Settlements (@BIS_org) May 16, 2024

Additionally, the BIS Innovation Hub recently announced its plans for 2024, aiming to build on the success of the 12 projects completed in 2023, with eight more ongoing. The upcoming projects will emphasize advancements in artificial intelligence, cybersecurity, anti-financial crime measures, central bank digital currencies, and sustainable finance initiatives.