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The BIS agenda: Asia CBDCs and tokenization

Bank of International Settlements will launch platform prototypes for currencies, payments, and bonds.

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The Bank of International Settlements has just released a blueprint for the fintech projects it intends to support in 2021 and 2022, with Singapore and Hong Kong at the forefront.

BIS identified four projects it intends to launch:

  • A regulatory reporting platform (Singapore)
  • A platform for settling cross-border payments using multiple central-bank digital currencies (Singapore)
  • Retail central-bank digital currency (Hong Kong)
  • Tokenization of green bonds (Hong Kong)

This roadmap is in some ways a departure for BIS, which has three “innovation hubs”, in Basel, Switzerland; Singapore; and Hong Kong. Its existing projects are divided among the three locations, but its new ones are just in Asia.

In other aspects, the roadmap is a continuation of the BIS’s fintech projects, which have already touched on regtech, digital infrastructure, open finance, and cybersecurity, as well as central-bank digital currencies (CBDCs).

RegTech

BIS is owned by 63 central banks. Known as the “central banker’s central bank”, as it does provide banking services to its members, the BIS is also a forum for international monetary and financial cooperation and coordination.

The regulatory reporting platform will develop an open-source proof-of-concept and prototype that will enable real-time data analytics using artificial intelligence and machine learning tools that supervisors can deploy to use and validate for risk assessments specific to their requirements.



It follows other projects in the regtech/suptech (“supervisory tech”) space, notably Rio, which was produced in Switzerland. This is a prototype of a central-bank specific, real-time capable market monitoring platform. Rio’s cloud-based stream processing platform will process real-time financial data feeds and compute relevant liquidity and market risk measures.

CBDCs

BIS has been active in the CBDC space, not surprising given its provenance. Among its works to date is Project Helvetica, undertaken with Swiss National Bank and SIX exchange group. Helvetica has set out to demonstrate the functional feasibility and legal robustness of settling tokenized assets with a wholesale CBDC, and through linking a digital-ledger technology platform to existing payment systems.

BIS has also been supporting Project Inthanon/Lionrock, the multi-currency wholesale CBDC project between Hong Kong Monetary Authority and Bank of Thailand – a project that looks likely to expand to include the United Arab Emirates and mainland China.

BIS plans to add two more projects to its CBDC roster.

In Singapore it will explore the creation of an international settlement platform onto which central banks would issue multiple wholesale CBDCs. Regulated banks and payment service providers would then use the platform as a common settlement infrastructure, enabling participants to purchase, exchange, transact and redeem these different CBDCs.

In Hong Kong it will study the benefits and challenges of tiered architectures for the distribution of retail CBDCs through commercial banks and payment service providers. It will study doing so via either hybrid CBDC models, or through private CBDC-backed stablecoins.

This project can be put in the context of DigFin’s recent reporting of the likely addition of mainland China’s digital yuan project into the Inthanon/Lionrock project, which represents a blending of HKMA’s wholesale CDBC aims with the sort of retail pilots now taking place in the mainland.

Green bonds

Finally, BIS’s move into green bonds represents new territory. It will develop a prototype in Hong Kong to study the applicability and scalability of tokenized retail bonds, and whether the government should introduce tokenized green bonds in small denominations for retail investors – echoing DigFin’s own call earlier this month for exactly that.

BIS may intend for these Asia-based projects to scale globally. It is adding new innovation hubs in Toronto, London, Stockholm and a joint office in Paris and Frankfurt (which will direct its CBDC work).

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The BIS agenda: Asia CBDCs and tokenization