BIS’s CBDC-related projects (1)
BIS Innovation Hub (BISIH) was established in 2019 with the aim of developing public goods in the technology sector that can deeply understand the development situation of major related technologies that will affect the work of the central bank and make the global financial system work better. Currently, it is establishing a strategic partnership with the Eurosystem, Paris, and Frankfurt, Hong Kong, London, Nordic, Stockholm, Singapore, and Switzerland, as well as Toronto centers. In addition, it is establishing a strategic partnership with the Federal Reserve Bank of New York in the United States.
As of early April 2024, BISIH lists a total of 34 projects on its website, including 17 concluded, 16 in progress, and 1 in-coming. Of these, 14 are CBDC projects, and the four projects currently classified as in progress are as follows.
- Project Agorá
On April 3, 2024, BIS announced plans to launch a project named Agora, which means marketplace in Greek. The project seeks to improve the monetary system by tokenizing deposits of wholesale CBDCs and commercial banks on a programmable platform, with central banks promoting tokenization of cross-border payments with the banking industry. Through tokenization and smart contracts, research is prioritized in exploring ways to implement functions or transaction methods that are currently difficult to implement, and improving speed and integrity while reducing the cost of international payments. The project is promoted in a way that the central banks of seven countries, France, Japan, South Korea, Mexico, Switzerland, the United Kingdom, and the United States (New York Fed), representing BIS and the euro system, collaborate with a number of private financial companies arranged by the Institute of International Finance (IIF). Multiple regular financial institutions representing each of the seven currencies will participate.
Based on the concept of unified ledgers presented in the 2023 BIS Annual Economic Report, the project seeks a seamless integration of tokenized commercial bank deposits and tokenized wholesale central bank money in a public-private programmable core financial platform. The purpose of this project is to increase functionality and use new methodologies based on smart contracts and programmability while maintaining the two-tier structure of the monetary system.
- Project Aurum 2.0 (Project Aurum 2.0)
The subtitle of Project Aurum 2.0, announced on March 6, 2024, is “Improving Privacy for Retail CBDC Payment.” The project, which is the second stage of the project Aurum, which ended in October 2022, is jointly promoted by the BISIH Hong Kong Center and the Hong Kong Monetary Authority (HKMA).
The project focuses on a methodology to enhance the privacy of retail CBDCs based on a prototype developed in the first phase of the project to test the feasibility of a technology stack integrating wholesale interbank systems and retail electronic wallets. The main goal is to find a methodology to balance the transparency of CBDCs and privacy, which is one of the main considerations for consumers when considering the adoption of CBDCs. The project seeks to leverage expertise in various fields through cooperation with universities and privacy experts and to enhance the understanding of central banks and the public sector on privacy technologies that can be used to design CBDC systems. To implement a methodology that reflects privacy in the design itself, the availability of various technologies including pseudonomization and zero knowledge proof is reviewed. It also tests how enhancing privacy affects the performance of the system and compliance with the law.
- Project Mandala
The project Mandala, subtitled “The future of cross-border payment compliance, shaping the future of cross-border payments compliance,” was announced on November 15, 2023. The purpose of the project is to solve the main challenges of multi-national CBDCs (CBDCs) identified in the project Dunbar, which was carried out in 2022.
The project seeks the possibility of programming individual countries’ policies and regulatory requirements into common protocols to be used in cases of cross-border foreign direct investment, borrowing and payment. It also secures consistency with the FSB’s 2023 priority measures to achieve the G20’s goal of improving the efficiency of the legal, regulatory and supervisory environment while maintaining the safety, security, and integrity of cross-border payments. It seeks to more efficiently handle cross-border transfers of all digital assets, including CBDCs and tokenized deposits, through a compliance-by-design system structure that reflects regulatory compliance in the design. This structure can be used as a foundational compliance layer jointly used by legacy and new wholesale and retail payment systems, and may include measures necessary for AML/CFT, as well as rules of foreign exchange transactions that can be quantified or set up.
- Project mBridge
Project mbridge uses the multinational CBDC’s common platform for cross-border wholesale payments to conduct experiments to address inefficiencies such as high cost, low processing speed and transparency, and operational complexity. It also aims to ensure that the monetary sovereignty and financial stability of the central banks of each participating country are not violated under the principle of securing regulatory compliance and interoperability while accepting exchange rate control and capital flow management measures. To this end, build an mbridge platform based on custom-built DLT, documented comprehensive legal guidelines, and fit-for-purpose governance structures. The BISIH Hong Kong Center, HKMA, Bank of Thailand, People’s Bank of China, and the United Arab Emirates (UAE) Central Bank will be the founding central banks in charge of carrying out the project.
Between August 15 and September 23, 2022, 20 commercial banks from Hong Kong, mainland China, the UAE, and Thailand participated in a payment-versus-payment (PvP) and foreign exchange transaction simulation for their respective corporate customers. In this experiment, CBDCs issued by central banks in each country on the mbridge platform were used, and real values were directly paid for corporate customers on the platform. More than US$12 million was issued on the platform of the project, and more than 160 payments and foreign exchange PvP transactions were executed, valued at more than US$22 million. The results of this experiment were released on October 26, 2022, in a report titled “Project MBridge: connecting economies through CBDC.”
mbridge did not end with this experiment. In fact, the above report presents a number of key tasks of mbridge’s roadmap to be implemented in 2023 and 2024, including achieving automated interoperability with the domestic payment system, integrating FX price search and matching into the platform, introducing liquidity management tools such as transaction queueing and priority management, evaluating the role of central bank participants in liquidity supply, improving data privacy preservation tools, continuous development of legal frameworks and platform terms, and collecting considerations necessary for policy, regulation and compliance. BISIH and the base central banks continued to make additional development efforts, and on October 31, 2023, they released an updated report titled “Project mBridge with a multi-CBDC platform for cross-border payments.” This report summarizes the project’s existing achievements and presents the next step as a task to verify the possibility of developing the platform used in the test into a minimum viable product. To this end