Implementation of real-time settlement for banks using decentralised ledger technology: policy and legal implications

A wave of innovation is occurring in financial technology, affecting products and services offered to consumers and businesses as well as financial market infrastructures such as payment and settlement systems. These innovations taken together have the potential to vastly lower the cost of financial transactions, resulting in a qualitative shift analogous to the advent of the internet in the 1990s, supporting international financial inclusion and enhancing global systemic stability. We refer to both the current set of innovations bringing about the shift we describe, as well as future innovations built on these new technologies, as the Internet of Value (IoV). Just as the internet ushered in an era of rapid innovation, economic growth and productivity gains, the potential promise of the IoV includes greater prosperity, financial access, stability and further innovation; however, appropriate industry, regulatory and policy support will be needed in order to achieve this promise. This paper examines one recent financial innovation, decentralised ledger or blockchain technology, and considers the legal and policy ramifications of one of its most widely-discussed use-cases: real-time settlement in bank-to-bank payments. Our analysis focuses on two elements, trust and coordination, both of which are fundamental to current payments laws and rules. Decentralised ledger technology replaces certain operational and even legal elements of the current payment system; yet trust and coordination continue to be relevant considerations. Creation and adoption of appropriate policy and legal frameworks are key to optimising the potential benefits of this technology.