Advancing Settlement: Central Bank Money in Blockchain Payments

Last week, the Bank of England hosted innovative firms to understand the implications of Distributed Ledger Technology (DLT) on the future of money.

Its “DLT Innovation Challenge,” launched with the BIS Innovation Hub, focused on a key question:

“Can wholesale central bank money be transacted and settled on an external programmable ledger which the Bank of England does not control, and where trust is not inherent?”

More than a technical curiosity, this is a foundational question for the safe adoption of blockchain and tokenization across the banking sector.

Let’s break down why the Bank of England chose this problem statement, how it supports wholesale innovation, and why this matters for institutional blockchain adoption – with a look at the Saudi market in particular.

DLT Innovation Challenge Explained

Today, wholesale settlements in the UK happen through the Central Bank’s Real-Time Gross Settlement system (RTGS). This where financial institutions move central bank money — the safest form of settlement asset — for everything from interbank payments to securities and repo transactions. RTGS is in fact the standard system for large value payments across most developed economies, including Saudi Arabia.

There are many reasons for the proliferation of RTGS among central banks. The system is fast, secure and convenient. Payments are completed near-instantaneously and are final and irrevocable. Compare this with the previous system where banks’ net obligations were settled at the end of the day, always opening the risk of a bank failing before final settlement and creating a cascading effect.

Think about the benefits for banks’ operations. You have access to a payment system that is highly secure since overseen by your central bank, you are transacting in central bank money, the safest and most liquid asset available, and you have minimal credit and liquidity risk thanks to payments being instant and final.

This last point in particular is key. RTGS ensures settlement finality. In other words, the system is the legal and practical guarantee that a transaction, once completed, is final and irrevocable. This is the bedrock of stability in the financial system, supporting certainty for banks and public trust that payments (and the currency behind it) are safe, secure and reliable.

Now put yourself in the shoes of a central bank, like the Bank of England, as you’re watching banks adopt DLT-based products. Banks are issuing and trading assets such as bonds, real estate, and more on the blockchain. They are also exploring tokenized deposits and stablecoins to transact on the blockchain, taking advantage of programmable money and smart contracts to improve their operations and offer better services to their customers.

The blockchain takes the role of RTGS. It is a near-instant payment system but one the central bank does not own or operate. Key questions arise:

• How can you guarantee settlement finality? i.e that the cash leg of a transaction is irrevocable if the central bank doesn’t control the ledger it happens on? Remember that finality is both a technological and legal question. RTGS ticks both of these boxes as it’s a central bank-born system. Where is the guarantee for blockchain-based payments? How does one even define “finality” if the blockchain in question uses probabilistic or validator-based consensus? For example, the largest blockchains Bitcoin and Ethereum operate in this way. A transaction is considered final only with a growing probability over time, as more blocks are added on top of it. There is a small chance of reversal in the event of a chain reorganization or validator fault, which decreases as more blocks are added. There is currently no authority that makes that finality legally binding.
• How do you preserve the same trust, auditability, and legal certainty that exist inside RTGS? Again, RTGS benefits from central bank governance, operational oversight and legal framework that means participants know exactly when a payment is settled and who is accountable when something fails and under which laws. None of this is currently the case for blockchain transactions. One can imagine central bankers asking which jurisdiction laws apply, who carries responsibility for the platform and more.

Rather than shut down private sector innovation in DLT, the Bank of England used this innovation challenge to between understand how these ledgers work and how they can address these questions.

The challenge therefore invited participants to demonstrate safe models for settling wholesale central bank money on external ledgers, testing how the two worlds could interoperate without compromising security, governance, or regulatory standards.

Why this matters for safe blockchain adoption in banking

Banks such as SAB experimenting with DLT face a dilemma:

• DLT brings speed and programmability, but
• Settlement assurance and trust still depend on central bank money.

If we tokenize assets — say, bonds, repos, or FX swaps — but settle them using unregulated stablecoins or internal ledger tokens, we reintroduce credit and counterparty risk that RTGS eliminated decades ago.

That is why the BoE’s challenge is not just academic. It is about maintaining trust and systemic safety while allowing innovation to scale. And this is not limited to the UK. In Saudi Arabia, our SAB-led Islamic repo experiment on-chain highlighted how instant, programmable settlement can improve liquidity for banks — but also how vital it is that a safe settlement leg in central bank money underpins those tokenized transactions.

Until we solve that bridge, blockchain in banking will remain experimental rather than live infrastructure.

Two Potential Models

From the BoE’s work (and similar BIS experiments), two main approaches are emerging for linking central bank money with distributed ledgers:

Model 1 — Wholesale CBDC

A tokenized form of central bank money issued directly onto a DLT.

• Central bank money exists natively on the same ledger as tokenized assets.
• Atomic settlement (cash and asset moving together) becomes simple.
• But operational and legal complexity skyrockets: the central bank must govern the ledger or rely on external validators. This a huge shift in accountability and infrastructure.

Model 2 — Synchronization Model

The central bank keeps its money within RTGS, but creates a synchronization capability linking RTGS with external DLT platforms.

• The “synchronization operator” coordinates conditional transfers across the two systems — ensuring both sides of a transaction occur atomically.
• Settlement finality remains in central bank money, while innovation continues on external ledgers.
• The BoE’s Synchronisation Lab is pioneering this model within its RTGS renewal roadmap.

More research and experimentation is needed to understand the pros and cons of both models. I could also see a future where elements of both models are utilized by central banks to ensure systemic trust in the financial system.

Broader implications

The BoE challenge signals three things to policymakers and banks worldwide:

1. Innovation is inevitable — but must be anchored in central bank trust. DLT networks can innovate, but they cannot replace the settlement assurance that comes from central bank money.
2. Bridges, not silos, will define the next era. The most realistic future is hybrid — where RTGS systems connect securely to programmable ledgers through standardized interfaces.
3. Governance is the new frontier. The real challenge is not coding interoperability — it’s establishing who is accountable for settlement, dispute resolution, and operational integrity when the ledger isn’t owned by the central bank.

A regional reflection

For those of us developing digital asset use-cases in the GCC, this challenge hits close to home.

Our experiments, from on-chain Islamic repo to cross-border transactions using CBDCs and Tokenized Deposits, show strong efficiency gains. But they also underline the need for a safe settlement anchor that regulators can trust.

The BoE’s work helps shape a roadmap for jurisdictions like Saudi Arabia, where digital asset adoption must go hand-in-hand with settlement safety, Shariah compliance, and regulatory clarity.

I believe the foundation of finance will always remain final settlement in central bank money, whether it lives natively on a blockchain or connects to it through synchronized bridges, and therefore it is important both regulators and banks globally follow the BoE’s lead in exploring this area.