The Bank of England, Monetary Authority of Singapore (MAS) and Bank of Thailand have completed an FX settlement trial, Project Meridian FX APAC, testing whether a synchronization operator could coordinate atomic payment versus payment (PvP) transactions across three different types of central bank wholesale settlement systems. It found synchronization worked. But it also showed that the scope of the operator’s role depended on the capabilities that each central bank system offered. In two cases, the operator ended up doing significantly more than the light weight non-custodial role that central banks want it to play.
Synchronization relies on reserving funds in place. A synchronization operator matches both legs of an FX trade and earmarks funds on each system, locking them so they can’t be used for anything else. Once both sides are earmarked, the operator triggers settlement atomically. There’s an important difference between earmarking, where the funds remain in place, versus escrow where custody changes. The operator is supposed to coordinate and should never hold anyone’s money.
The Bank of England’s test environment, based on its recently launched RT2 system, was built with interoperability in mind. It supported earmarking directly, so the operator needed no workarounds. Thailand’s Project SAN, a centrally controlled distributed ledger with an interoperability layer, used an escrow arrangement internally to reserve funds, though custody never passed to the operator. MAS’s SGD Testnet was a different story. The shared ledger for wholesale CBDC did not support the operator earmarking balances on behalf of participants, so Partior had to run a dedicated escrow account, temporarily taking custody of funds. That flipped the non-custodial model on its head, raising custodial, credit and insolvency questions.
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