A central ledger is a record of accounts and transactions that is kept, updated and controlled by a single authority. Every balance lives in one authoritative book, and only the operator can write to it. Most of the world's money is recorded this way: commercial bank deposits sit in each bank's core banking ledger, and banks' reserves sit in the central bank's settlement ledger.
The term is mostly used in contrast with a distributed ledger, in which many independent parties hold copies and agree on changes through consensus. It is a description of how a ledger is governed, not a single product. "Central-Ledger" is also the name of a component in Mojaloop, the open-source software for inclusive instant payment systems.
Central ledger in plain terms
Think of a club treasurer who keeps the only accounts book. Members hand over money or ask for payments, and the treasurer writes every entry. If two members disagree about a balance, the book decides. Nobody else can change it, and everyone trusts the treasurer to keep it honest and safe.
A distributed ledger is like giving every member their own copy of the book, with a rule that an entry counts only when enough members agree. The treasurer's single book is simpler, faster and private. The shared books mean nobody has to trust one treasurer, at the price of more coordination.
History
Central record keeping is as old as banking. Temples and palaces in ancient Mesopotamia tracked debts and stores with clay tokens and tablets, and medieval banks kept the accounts of their customers in bound books, an early form of ledger money. Double-entry bookkeeping, described by Luca Pacioli in 1494, gave those books a built-in check: every entry is recorded twice, so the totals must balance. From the 1960s banks moved their ledgers onto mainframe computers, but the model stayed the same: one institution, one authoritative book.
Central ledgers in banking and payments
- Bank core ledgers. A bank records customer deposits, loans and payments in its core ledger. Moving money between two customers of the same bank is simply a pair of entries in that ledger, a book-to-book transfer. That balance is commercial bank money.
- Central bank settlement ledgers. Banks hold settlement accounts at the central bank. Interbank payments move central bank money between those accounts in a real-time gross settlement (RTGS) system such as Fedwire in the United States, CHAPS in the United Kingdom or T2 in the euro area. Because the central bank is the single record keeper, a transfer recorded there is final.
- Payment hubs. In a switch or clearing house, a central ledger tracks each participant's position. Mojaloop's Central-Ledger services, for example, clear transfers between providers and keep net positions for deferred net settlement, checked against each participant's liquidity cover.
- Mobile money and e-money. A mobile money operator or e-money issuer keeps a central ledger of customer wallet balances, matched against funds held at a bank.
Central and distributed ledgers compared
| Feature | Central ledger | Distributed ledger |
|---|---|---|
| Who writes entries | One operator | Many nodes, through consensus |
| Trust model | Trust in the operator, backed by law and supervision | Trust in the protocol and the honest majority |
| Speed and cost | Fast, little coordination overhead | Slower or costlier per transaction |
| Privacy | Visible only to the operator | Often visible to all participants |
| Correcting errors | The operator can reverse or adjust | Hard by design |
Between the two sit private ledgers and permissioned blockchains, run by a few known institutions, and public ledgers open to anyone. Distributed ledger technology (DLT) was largely developed to remove the need for a trusted central record keeper, as discussed in Centralized vs. Decentralized.
Strengths and weaknesses
- Clear legal finality. One authoritative record makes it simple to say when a payment is complete, which is why central bank ledgers sit at the top of most payment systems.
- Efficiency. No consensus round is needed, so central ledgers can process large volumes at low cost.
- Single point of failure. An outage, cyberattack or error at the operator affects everyone, so operators run backup sites and strict controls.
- Trust and access. Users depend on the operator's honesty and on its rules about who may hold an account. Each institution keeps its own ledger, so firms spend heavily on reconciliation between them.
Many current projects mix the two models. Most CBDC designs keep a central ledger run by the central bank, while tokenised deposits experiment with putting bank money onto shared ledgers.