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BIS explores integrating DeFi technology into foreign exchange markets

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(Kitco News) – The Bank for International Settlements (BIS) Innovation Hub has announced the launch of a new project designed to explore central bank digital currencies (CBDCs) and decentralized finance (DeFi) protocols.

The new initiative has been dubbed “Project Mariana” and will include participation from the central banks of France, Singapore, and Switzerland. The project intends to explore automated market makers (AMM) for the cross-border exchange of hypothetical Swiss franc, euro and Singapore dollar wholesale CBDCs.

“It will seek to examine the potential between financial institutions to settle foreign exchange trades in financial markets,” the BIS said.

To complete the project, the Eurosystem, Singapore and Switzerland BIS Innovation Hub Centers are working in collaboration with the Bank of France, the Monetary Authority of Singapore and the Swiss National Bank with the goal of delivering a proof of concept by mid-2023.

“Project Mariana uses DeFi protocols to automate foreign exchange markets and settlement, potentially improving cross-border payments,” according to the BIS.

One of the main points of focus for the study is AMMs, which combine pooled liquidity with innovative algorithms to determine the prices between two or more tokenized assets.

“In the future, similar AMM protocols could form the basis for a new generation of financial infrastructures facilitating the cross-border exchange of CBDCs,” the BIS said.

The overarching goal of the project is to explore the incorporation of DeFi technology into the traditional financial system to help improve its efficiency.

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

The BIS has had a busy 2022 regarding its actions related to blockchain technology and cryptocurrencies. In September, the central bank for central banks launched Project Icebreaker, a joint exploration with the central banks of Israel, Norway and Sweden on how central bank digital currencies can be used for international retail and remittance payments. According to a recent report authored by BIS, 90% of central banks worldwide are currently researching the utility of CBDCs.

In October, the organization released the results of its Genesis 2.0 initiative, which explored the use of blockchain, smart contracts and the Internet of Things (IoT) to help make the green finance market more efficient and effective.

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