E-settlement is a solution for improving interbank settlement systems. It is based on a decentralised approach to be fully integrated with the banks’ payment systems. The basic idea is that central bank money, the settlement cover, is transferred as an encrypted digital stamp as part of the interbank payment message. In this model, the future payment systems would operate close to the Internet/e-mail concept by sending payment messages directly from the sending bank’s account/payment server to the system of the receiving bank, with immediate final interbank settlement, without intervening centralised processing. Payment systems would become more efficient and faster and the overall structure would become straightforward. The e-settlement and network-based system concept could be applied with major benefits for correspondent banking, ACH and RTGS processing environments.
In order to assess this novel idea the Bank of Finland built a prototype of the e-settlement model. It consist of a group of emulated banks sending payments to each other via a TCP/IP network under the control of a central bank as the liquidity provider and an administration site monitoring the system security.
The Bank of Finland published a discussion paper on e-settlement model and prototype. It can be downloaded partly or completely via following links:
Additional papers:
The Bank of Finland have published another discussion proposal on the same topic:
There are also PowerPoint slides available as follows:
All comments, improvement ideas and questions are appreciated.
Email: e-settlement@bof.fi