Technologists who have argued that distributed ledgers are the future of cross-border payments got a win on Monday from a surprising source: the Bank of England.
Using technology developed by Ripple, the central bank's fintech accelerator successfully showed that a high-value cross-border payment involving two different currencies could be processed across two separate systems simultaneously, it said Monday. Each system was meant to represent a sovereign country.
The proof of concept relied on Ripple's enterprise software, which dozens of banks, including Santander, Royal Bank of Canada and Mitsubishi UFJ Financial Group, are commercially deploying as a way to do cheap, fast payments. Another essential piece was Ripple's Interledger Protocol, which allows payments to be settled across distinct ledgers.
The San Francisco startup's protocol "created a single source of truth between the two ledgers, eliminating the need for separate processes such as mutual reconciliation between separate ledgers," the bank said in a press release.
The proof of concept is important because of its implications for the United Kingdom's Real Time Gross Settlement service, which the central bank has been operating since 1996 as a means for banks to make payments to one another.
The Bank of England is on a mission to replace the settlement service. Despite its view that blockchain technology is "not sufficiently mature to support the core RTGS system," the central bank wants the next version of the system to be compatible with distributed ledgers in the private sector, according to the release.
While the proof of concept was conducted on a simulation isolated from the actual system code, its successful conclusion reinforced this aim, the Bank of England said.
According to the release, the central bank may pursue additional proofs of concept in order to study the synchronization of payments in more depth.