The Bank for International Settlements (BIS) and Inter-American Development Bank (IDB) have signed an agreement to work together to ‘develop innovative technologies for the financial sector’.
Switzerland-headquartered BIS, whose membership comprises 63 central banks and monetary authorities, and the Washington DC-headquartered development financing institution have agreed a Memorandum of Understanding (MoU) to foster innovation and financial inclusion across Latin America and the Caribbean.
The focus will be on ‘exploring and developing technology that can help to modernise the region’s financial systems’.
The first project under the collaboration is aiming to create ‘scalable’ settlement solutions for financial market infrastructures that could support payment systems, security settlement systems or ‘even’ central bank digital currencies (CBDCs), BIS states. The Caribbean has emerged in the past three years as a CBDC hotspot, with the Bahamas having launched the ‘Sand Dollar’ in 2020; the Eastern Caribbean Central Bank having launched ‘DCash’ in 2021; and Jamaica launching ‘Jam-Dex’ in 2022.
The MoU also foresees co-operation on technical assistance and training for national and regional authorities in the technologies to be used in the first project, as well as envisaging a policy dimension to complement the technical work.
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‘Project FuSSE’ underway
The first collaboration is titled ‘Project FuSSE’, which stands for ‘Fully Scalable Settlement Engine’.
‘The deepening of the digital economy has increased the demand for financial services, with new customers, more transactions per user and a need for faster services. This surge in demand puts pressure on the systems currently used by central banks and other financial market infrastructure operators,’ BIS explains in a press release on the IDB link-up.
Project FuSSE aims to design and test back-end functionality that can be adapted to multiple types of infrastructures, allowing them to process a continuously growing number of transactions, BIS states. It specifically aims to test ‘highly scalable’ systems in three ways: number of transactions, types of assets and number of participants.
In its first phase, which is already underway, FuSSE is looking to deliver a proof-of-concept for a ‘basic’ settlement mechanism that will be developed as a modular flexible architecture incorporating quantum-resistant cryptography.
All software developed will be made available on an open-source basis to central banks globally, ‘fulfilling the BIS Innovation Hub’s mission of developing public goods’.
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Financial inclusion focus
BIS general manager Agustín Carstens and IDB president Ilan Goldfajn signed the MoU in the Spanish city of Santiago de Compostela during a ‘High-Level Dialogue on the Development of Critical Financial Market Infrastructure’ meeting featuring finance ministers and central bank governors from the region.
“Financial market infrastructure technologies are complex and expensive. So, creating a community with the region’s central banks to develop Project FuSSE has the potential to enhance these infrastructures and make the whole financial system work better. We look forward to gaining new perspectives as part of this collaboration, and to working together to develop new use cases and design solutions,” said Carstens, who was governor of the Bank of Mexico before taking the top BIS role almost six years ago.
“The role of new technologies is key to creating a consolidated network of fast and efficient payment and other systems across the region at minimal cost. This can help promote financial inclusion, provide regional integration and reduce poverty in Latin America and the Caribbean. We need to have a secure market infrastructure to support development,” said Goldfajn, a former governor of Banco Central do Brasil who was elected IDB president 10 months ago.
The ‘High-Level Dialogue’ took place within the framework of an informal ministerial meeting of the European Union (EU)’s Economic and Financial Affairs Council (Ecofin).
Spain currently holds the six-month rotating presidency of EU (until end-December) and has sought to prioritise relations with Latin America and the Caribbean, for example holding a EU-CELAC summit in Brussels in July (CELAC is the ‘Community of Latin American and Caribbean States’).
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IDB introduces ‘ConectaLAC’
Separately, the IDB has presented what it describes as a ‘pioneering’ digital analytics platform designed to help governments and investors ‘identify opportunities and design cost-effective projects to close digital connectivity gaps’ in Latin America and the Caribbean.
The platform – named ConectaLAC – aims to enable policymakers and investors to ‘map relevant populations, institutions and productive sectors lacking access to connectivity’ at a national and regional level across 26 countries in Latin America and the Caribbean.
‘This innovative platform empowers users with tools to design connectivity projects that draw on unique layers of data (geography, infrastructure, population density and others) for increased impact and cost-effectiveness,’ the IDB states in a press release.
Goldfajn presented the platform during the ‘SDG Digital’ event (‘SDG’: Sustainable Development Goals), part of the ‘SDG Action Weekend’ hosted at the United Nations (UN)’s New York City headquarters on 16-17 September.
The IDB launched a platform to track broadband penetration in Latin America, ‘DigiLAC’, in 2014.
CARIBBEAN DIGITAL SUMMIT
Global Government Fintech’s sister title Global Government Forum is organising a roundtable summit for Caribbean digital leaders on 16-17 October in Bridgetown, Barbados. Hosted by the Prime Minister of Barbados, the ‘Caribbean Digital Summit’ brings together national and departmental digital chiefs from across the Caribbean for open, informal discussion of the opportunities and challenges around public sector digital transformation
