Bank for International Settlements will test DeFi implementation in forex CBDC markets

The centralized financial institution says the automated market making technology in DeFi can serve as a “basis for a new generation of financial infrastructure.”

According to a new announcement on Nov. 2, the Bank for International Settlements, or BIS — along with the central banks of France, Singapore and Switzerland — will embark on a new initiative dubbed “Project Mariana” in its exploration of blockchain technology. Project Mariana intends to use decentralized finance, or DeFi, protocols to automate foreign exchange markets and settlement. 

Project Mariana explores using automated market makers for the cross-border exchange of hypothetical CHF, EUR and S$ wholesale CBDCs. It's a #BISInnovationHub joint venture with the French, Swiss & Singapore #CentralBanks@banquedefrance @MAS_sg @SNB_BNS https://t.co/GsNLpXZlsD pic.twitter.com/2tMitZcNF2

— Bank for International Settlements (@BIS_org) November 2, 2022

This includes using DeFi protocols to stimulate the hypothetical exchange of cross-border transactions between the Swiss franc, euro and Singapore dollar wholesale central bank digital currencies, or CBDCs. The technologies involved in building Project Mariana include smart contracts and automated market maker protocols, or AMMs. Researchers seek to combine pooled liquidity in AMMs with innovative algorithms to determine the prices of tokenized assets, potentially developing into a basis of exchanges for CBDCs.

As an organization created by central banks to regulate the international financial framework, BIS wrote that “AMM protocols could form the basis for a new generation of financial infrastructures facilitating the cross-border exchange of CBDCs.” Cecilia Skingsley, head of the innovation hub at BIS, added:

“This pioneering project pushes our CBDC research into innovative frontiers, incorporating some of the promising ideas of the DeFi ecosystem. Mariana also marks the first collaboration across Innovation Hub Centres; expect to see more in the future.”

BIS and the collaborating central banks have set a tentative date of mid-2023 for delivering a proof-of-concept. The financial institution was previously skeptical of digital assets due to their inherent price variance and lack of a unified regulatory framework. Nevertheless, BIS has praised elements of distributed ledger networks, such as their technological prowess relative to fiat money. According to a recent report authored by BIS, 90% of central banks worldwide are currently researching the utility of CBDCs. 

Update (Nov. 2, 5:32 pm UTC): This article has been updated to correct the spelling of the Bank for International Settlements and to correct a quote taken from its announcement.