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    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    November 03, 2022

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots. There is a strong interest in the development of CBDCs in regions such as Europe (EU, UK) and Asia. Certain Asian and other central banks like those from Australia, China, India, Japan, the Philippines, and Thailand have also either launched or are in the process of launching their own CBDC research and pilots. Recently, the BIS Innovation Hub and Bank Indonesia also announced the winners of the G20 TechSprint 2022 challenge related to CBDCs. This article provides information on various such initiatives that have either concluded or are underway.

    Project mBridge. The Bank for International Settlements (BIS) and four central banks have completed a successful pilot of the use of central bank digital currencies (CBDCs) by commercial banks for real-value transactions across borders, as part of Project mBridge. The four associated entities are the Hong Kong Monetary Authority (HKMA), the Bank of Thailand (BOT), the Digital Currency Institute of the People's Bank of China (PBC), and the Central Bank of the United Arab Emirates (CBUAE). A report on the mBridge project reveals that 20 banks in the four jurisdictions used the mBridge platform to conduct 164 payment and foreign-exchange transactions totaling over USD 22 million over six weeks, settled directly on the platform. The pilot advances multi-CBDC experimentation by settling real value directly on the platform and on behalf of corporate customers. By enabling peer-to-peer and instant exchange of multiple CBDCs on a single network, Project mBridge aims to solve long-standing inefficiencies in cross-border payments and foster greater financial inclusion and innovation in international payments. The results of the pilot are to be presented at Hong Kong Fintech week during October 31 to November 04, along with two other Hong Kong Center projects. Going forward, HKMA and the rest of the project team will continue to work towards developing the mBridge platform into a Minimum Viable Product and ultimately a production-ready system.

    Project Aurum. As part of this project, the BIS Innovation Hub has completed its first retail CBDC system. Aurum is a full-stack (front-end and back-end) CBDC system comprising a wholesale interbank system and a retail e-wallet system. The aim of the project was to bring to life two very different types of tokens: intermediated CBDC and stablecoins backed by CBDC in the interbank system. This project is a collaboration between the BIS Innovation Hub Hong Kong Center, HKMA, and the Hong Kong Applied Science and Technology Research Institute. The prototype system was successfully completed in July 2022, following the core principles of safety, flexibility, and privacy. The prototype is designed to prevent over-issuance and to be flexible for different CBDC models.

    Project Mariana. The BIS Innovation Hub recently launched a new project around CBDCs and Decentralized Finance (DeFi) protocols as part of its 2022 work program. At present, DeFi built on public blockchains uses smart contract protocols to automate markets for crypto and digital assets. This project investigates the use of automated market makers (AMMs) to automate foreign-exchange markets and settlement, potentially improving cross-border payments. This will be a joint project between the Switzerland, Singapore, and Eurosystem BIS Innovation Hub Centers, the Bank of France (BDE), the Monetary Authority of Singapore (MAS), and the Swiss National Bank (SNB). The project explores the use of AMMs for the cross-border exchange of hypothetical Swiss franc, euro and Singapore dollar wholesale CBDCs between financial institutions to settle foreign-exchange trades in financial markets. The project aims to explore the design and application of AMMs for wholesale CBDCs, investigate if a supra-regional network could work as an efficient and trusted hub for cross-border settlement, and research wholesale CBDC governance models within that network. The aim is to deliver a proof of concept by mid-2023. 

    G20 TechSprint 2022. BIS and Bank Indonesia announced winners of the G20 TechSprint 2022 challenge, which was launched in April 2022 to catalyze new technologies that would better enable the development and future use of CBDCs. Post an assessment of the 21 shortlisted teams, developed prototypes from three were selected as the winners. Team Dragonfly Fintech Pte Ltd from Singapore won the "Effective and robust means to issue, distribute and transfer CBDCs" category for their solution End-to-End CBDC Solution, which is a proprietary blockchain ledger with unique in-built features and includes a mobile wallet and digital identity platform. Team Bitt-IDEMIA from the U.S. won the "Enabling Financial Inclusion" category for their solution Secure Offline CBDC Payment Solution, which is a platform that allows monetary authorities to launch interoperable CBDCs while also leveraging on a layer-2 solution to enable offline payments. Team Partior from Singapore won the "Improving interoperability" category for their solution Project Naucratis: Enabling Connectivity & Interoperability for mCBDC, which is a blockchain-based multi-CBDC network that supports both account-based and token based CBDC models.

    Project Ubin+. MAS recently launched Ubin+, an expanded collaboration with international partners on cross-border foreign-exchange settlement using wholesale CBDC. This initiative builds on the foundation started with Project Ubin (2016-2020) and lessons learned from MAS’ participation in an earlier Project Dunbar, which proved that a common platform for multiple wholesale CBDCs could enable cheaper, faster, and safer cross-border payments. Ubin+ will study business models and governance structures for cross-border foreign-exchange settlement, develop technical standards and infrastructure, and establish policy guidelines for the connectivity of digital currency infrastructure across borders. As part of Ubin+, the following projects will be undertaken with international partners:

    • The Project Mariana that is mentioned above and plans to investigate the use of automated market makers to automate foreign-exchange markets and settlement. The project is a partnership involving MAS, Banque de France, Swiss National Bank, and the Bank for International Settlements Innovation Hub’s Eurosystem, Switzerland, and Singapore Centers. 
    • MAS is participating in SWIFT’s CBDC Sandbox, along with more than 17 central banks and global commercial banks, to explore cross-border interoperability across digital currencies based on digital ledger technology (DLT) and non-DLT payment systems. 
    • MAS will study possible mechanisms to maintain connectivity across CBDC and other heterogenous digital currency networks. MAS will also study the use of smart contracts to optimize efficiency and reduce counterparty risks in the settlement of cross-border transactions. 

     

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    Keywords: International, Banking, Regtech, Suptech, CBDC, Blockchain, Decentralized Finance, Central Banks, BIS

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