A project to develop a platform to enable systemic monitoring of stablecoins is among the new fintech initiatives announced this week by the Bank for International Settlements (BIS) as part of its Innovation Hub’s 2023 work programme.
The Innovation Hub was established by Switzerland-headquartered BIS in 2019 to identify and develop insights into fintech trends, explore the development of tools to improve the functioning of the global financial system and become a focal point for central bank experts. Activities across its growing number of locations around the world are closely watched by financial authorities eyeing the cutting-edge of fintech innovation globally.
The Innovation Hub’s third annual work programme includes increased focus on improving payments systems and experimenting with central bank digital currencies (CBDCs); on shaping the future of financial regulation and supervision; and on ‘greening’ and ‘securing’ the financial sector.
The stablecoins monitoring experiment – known as ‘Project Pyxtrial’ – is to be overseen by the Hub’s Bank of England-housed London centre, whose first two projects were confirmed almost a year ago. The project is focused on developing a platform to monitor the balance sheets of stablecoins (digital currencies that are pegged to a ‘stable’ reserve asset, for example as a fiat currency such as the dollar, pound or euro).
‘Most central banks lack tools to systemically monitoring stablecoins and avoid asset-liability mismatches,’ BIS explains in this week’s announcement of the work programme. ‘The project will investigate various technological tools that may help supervisors and regulators to build policy frameworks based on integrated data.’
Projects growing in number
Overall the Innovation Hub’s six pre-existing focus areas – CBDCs, ‘next-generation’ financial market infrastructures, SupTech and RegTech, open finance, cyber-security and green finance – retain their status as its priority themes for 2023. But the total number of projects worldwide has grown since BIS’s previous annual stocktake, with 21 projects ongoing and five having been concluded.
CBDCs and improvements in payments systems continue to comprise the most significant field of exploration, accounting for 15 of the 26 projects active during the past two years. This emphasis reflects the interests and priorities of central banks and G20 programme to improve cross-border payments.
BIS states that its Innovation Hub centres are experimenting more with retail CBDCs (CBDCs that would be available to the public), ‘building on’ knowledge gained from wholesale (inter-bank) CBDC projects such as ‘Project Helvetia’ (which also involved Swiss National Bank and financial infrastructure operator SIX). Examples of retail CBDC initiatives include projects focused on the technology architecture of a two-tiered distribution model (‘Project Aurum’ – involving the Hub’s Hong Kong centre); on retail CBDC distribution through an open application programming interface (API) ecosystem (‘Project Rosalind‘ – a project being overseen by the Hub’s London centre and which will incorporate a ‘TechSprint’ in its second phase); and examining scalability and privacy (‘Project Tourbillon’, which is being run by the Hub’s Swiss centre).
Projects focused on financial regulation and supervision include the development of tools for real-time monitoring of financial markets, for example ‘Project Rio’ (again being run by the Hub’s Swiss centre), a prototyped central bank-specific cloud-based ‘stream processing’ platform.
BIS also notes that its cyber-security portfolio has been growing, with several initiatives (including ‘Project Sela’ – involving the Hub’s Hong Kong centre) that explore CBDC cyber resilience; well as a project focused on applying post-quantum cryptography in central bank processes (‘Project Leap’ – involving the Hub’s yet-to-officially-open Eurosystem centre).
Delayed opening(s) in Eurosystem and Canada
The BIS Innovation Hub has been overseen by Cecilia Skingsley since September 2022. Skingsley, who was included in Global Government Fintech’s ’23 people to watch in 2023’, was previously Sveriges Riksbank’s first deputy governor.
The Innovation Hub Eurosystem centre – co-hosted by Germany’s Bundesbank, the Bank of France and the European Central Bank (ECB) – was scheduled to open during the first half of 2022. But its opening has been pushed back.
“The opening of an Innovation Hub centre requires the relevant jurisdiction to incorporate the BIS’ status as an international organisation into local law. This process typically requires the enactment of legislation and/or the adoption of orders by government,” a BIS spokesperson told Global Government Fintech this week. “This process is close to completion for the Eurosystem centre and we expect to formally open the centre very soon.”
A new Innovation Hub centre in Canada has faced a similar delay to its official opening. Miguel Díaz, previously general director of payment systems and market infrastructures at the Bank of Mexico, was hired more than a year ago to head the Toronto centre.
BIS is keen for more projects to involve multiple Innovation Hub centres at once. One example of a project that already does so is ‘Project Mariana’. This initiative, which involves the Hub’s Swiss, Singapore and yet-to-officially-open Eurosystem centres, is exploring the exchange and settlement of Swiss franc, euro and Singapore dollar wholesale CBDCs with an automated market maker (AMM) arrangement. AMM enables the exchange and settlement of two or more digital assets to be performed automatically with a smart contract.
*** The third BIS Innovation Summit, ‘Technological Innovation in the age of uncertainty’, will be held on 21-22 March 2023.
‘BIS Innovation Hub names Swedish central bank’s Skingsley as head’ – our news story (7 June 2022) on Cecilia Skingsley’s appointment
‘BIS Innovation Hub London head outlines centre’s first two projects’ – our news story (29 March 2022) on Francesca Hopwood Road presenting details of the Bank of England-hosted London centre’s first two projects
‘BIS Innovation Hub reveals 2022 workplan’ – our news story (25 January 2022) on the presentation of last year’s Innovation Hub programme
‘Auer appointed first head of BIS Innovation Hub Eurosystem centre’ – our news story (6 January 2022) on Raphael Auer, principal economist for innovation and digital economy in BIS’s monetary and economic department, being named inaugural head of the Eurosystem centre
‘BIS Innovation Hub centres open in Sweden and UK’ – our news story (16 June 2021) on the opening of a ‘Nordic’ centre and also the BoE-hosted centre
‘CBDCs and SupTech among priorities as BIS Innovation Hub maps out 2021 agenda’ – our news story (23 January 2021) on the six priorities in the Innovation Hub’s work programme for 2021
INTERESTED IN FINTECH INNOVATION?
The Global Government Fintech Lab 2023 will be held in Dublin on Thursday 18 May 2023. The Lab, our one-day event for senior public servants interested in exploring and implementing fintech solutions, is being organised in partnership with Ireland’s Department of Finance. The event, which is free to attend for all public servants, will feature keynote speeches, panels and breakout sessions focused on fintech-related opportunities and challenges for those working in central government, agencies and other public authorities.