Distributed ledger technology in payments, clearing, and settlement


  • David Mills,
  • Kathy Wang,
  • Brendan Malone,
  • Anjana Ravi,
  • Jeff Marquardt,
  • Clinton Chen,
  • Anton Badev,
  • Timothy Brezinski,
  • Linda Fahy,
  • Kimberley Liao,
  • Vanessa Kargenian,
  • Max Ellithorpe,
  • Wendy Ng, and
  • Maria Baird

NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.


Digital innovations in finance, loosely known as fintech, have garnered a great deal of attention across the financial industry. Distributed ledger technology (DLT) is one such innovation that has been cited as a means of transforming payment, clearing, and settlement (PCS) processes, including how funds are transferred and how securities, commodities, and derivatives are cleared and settled. DLT is a term that
has been used by the industry in a variety of ways and so does not have a single definition. Because there is a wide spectrum of possible deployments of DLT, this paper will refer to the technology as some combination of components including peer-to-peer n et working , distributed datastorage , and cryptography that, among other things, can potentially change the way in which the storage, recordkeeping,
and transfer of a digital asset is done.

The driving force behind efforts to develop and deploy DLT in payments, clearing, and settlement is an
expectation that the technology could reduce or even eliminate operational and financial inefficiencies, or other frictions, that exist for current methods of storing, recording, and transferring digital assets throughout financial markets. The purported benefits of DLT that could address these frictions, including improved end-to-end settlement speed, data auditability, resilience, and cost efficiency, have led industry participants to investigate the application of DLT to a wide variety of PCS processes. Proponents of the technology have claimed that DLT could help foster a more efficient and safe payments system, and may even have the potential to fundamentally change the way in which PCS activities are conducted and the roles that financial institutions and infrastructures currently play.

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