Revolutionizing Financial Markets: The Role of Distributed Ledger Technology in Payments, Clearing, and Settlements

Résumé

Distributed ledger technology (DLT), also known as blockchain, is considered one of the technological innovations with significant potential to revolutionize payments, clearing, and settlement processes. This paper aims to provide a comprehensive understanding of the application of DLT in these areas by evaluating its benefits, opportunities, and the risks and challenges associated with its practical and long-term adoption. This study employs a comprehensive systematic literature review as its primary methodology, involving the identification, selection, and critical analysis of relevant academic and industry sources. By conducting an exhaustive analysis of the literature, the research ensures a thorough and balanced examination of current knowledge, uncovering key trends, advancements, and existing gaps in the field. The findings reveal that current systems for clearing, settlements, and cross-border payments are often inefficient, slow, and costly. A DLT-based alternative has the potential to enhance these processes by making securities clearing and settlement more timely, transparent, efficient, and secure.  DLT allows organizations to conduct transactions in payments and settlements systems without requiring a central entity or intermediaries such as banks or clearinghouses, potentially enabling a more efficient, transparent, and secure financial market. Various DLT protocols have been employed in payments and securities initiatives, with central banks across multiple countries launching DLT-related research to assist the financial and commercial sectors in developing this technology. DLT-based systems represent a major opportunity to address the current frictions in payment clearing and settlement processes and are likely to cause a considerable change in market structures.  However, the technology is still in its early adoption stage and faces various obstacles, including technological barriers, privacy concerns, and regulatory challenges that need to be addressed by relevant stakeholders. The study emphasizes the importance of collaboration among stakeholders, including regulators, financial institutions, and technology providers, to overcome these challenges and leverage the opportunities presented by DLT in revolutionizing financial services.

This paper contributes to the broader discourse on the potential of emerging technologies to disrupt traditional financial services processes. It underscores the need for continued exploration and resolution of the issues hindering the adoption of DLT to fully realize its transformative potential in the financial sector. By examining these aspects, this paper seeks to shed light on the future landscape of payments, clearing, and settlements, and the role DLT might play in shaping it. The study underscores the importance of collaboration among stakeholders to overcome the challenges and leverage the opportunities presented by DLT in revolutionizing financial services.

Keywords: Distributed Ledger Technology (DLT) – Payments – Clearing – Settlements.

JEL Classification : G23, G28, G15

Paper type: Theoretical Research