BIS and central banks of France, Singapore, and Switzerland test cross-border CBDC using DeFi.

BIS and central banks of France, Singapore, and Switzerland test cross-border CBDC using DeFi.

The Future of Cross-Border Trading: Blockchain and Central Bank Digital Currencies

BIS CBDC Source: AdobeStock / Proxima Studio

The Bank for International Settlements (BIS) and central banks of France, Singapore, and Switzerland recently made a groundbreaking announcement. They successfully tested cross-border trading and settlement for wholesale central bank digital currencies (wCBDCs), incorporating innovative decentralized finance (DeFi) technology concepts and executing the test on a public blockchain.

The project, named Mariana, was a collaborative effort among the BIS Innovation Hub centers in Switzerland, Singapore, and the Eurosystem, along with the Bank of France, Monetary Authority of Singapore, and Swiss National Bank. It aimed to demonstrate the feasibility of cross-border trading and settlement involving hypothetical euro, Singapore dollar, and Swiss franc wCBDCs among simulated financial institutions.

The success of Project Mariana relied on three key elements:

  1. Common Technical Token Standard: A standardized token provided by a public blockchain to facilitate interoperability and exchange between various currencies. It acts as a bridge, enabling seamless transfer of wCBDCs across different networks.

  2. Bridges for Seamless Transfer: Mechanisms for frictionless transfer of wCBDCs across different payment and settlement systems maintained by participating central banks. These bridges allow for the smooth exchange of wCBDCs in a diverse financial landscape.

  3. Automated Market Maker (AMM): This specialized decentralized exchange played a crucial role in the project. The AMM effectively pooled liquidity from the hypothetical euro, Singapore dollar, and Swiss franc wCBDCs and utilized innovative algorithms to automatically price and execute spot FX transactions. It enabled immediate settlement of these transactions, ensuring efficient cross-border trading.

Project Mariana aimed to explore the possibilities of next-generation financial market infrastructures that streamline cross-border trading and settlement processes among financial institutions. It demonstrates the potential power of blockchain technology and DeFi concepts in revolutionizing the traditional financial system.

By leveraging a common token standard on a public blockchain, Mariana enabled seamless exchange and interoperability across diverse local payment and settlement systems maintained by participating central banks. This approach offers valuable insights into incorporating an international dimension into ongoing wCBDC design explorations.

However, it is crucial to acknowledge that tokenization and DeFi technologies are still in their early stages. While Project Mariana marks a significant step forward, there is still much more to discover and develop in these areas.

Cecilia Skingsley, Head of the BIS Innovation Hub, emphasized the significance of the project, stating, “Project Mariana pioneers the use of novel technology for interbank foreign exchange markets. It successfully demonstrated that it is feasible to exchange wholesale CBDC across borders using novel concepts such as automated market makers.”

In summary, the successful test of cross-border trading and settlement for wholesale central bank digital currencies conducted through Project Mariana highlights the immense potential of blockchain technology and DeFi concepts in shaping the future of the financial industry. While this project serves as a stepping stone, it also emphasizes the need for continued exploration and development of tokenization and decentralized finance as we aim to build more efficient and streamlined global financial systems.

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