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Payments, central bank digital currencies (CBDCs), decentralised finance (DeFi) and green finance are the key issues that the Bank for International Settlements (BIS) Innovation Hub will focus on in 2022.
CBDCs and improvements in payments systems continue to be an area of exploratory focus for the BIS, as it announces its 2022 objectives. Overall, the two issues account for 13 out of 17 projects that were active in 2021 and/or will be launched in 2022.
This reflects the interests and priorities of BIS member central banks, according to the international body, which is often referred to as "the world’s central bank".
“With an expanded network of Hub Centres and exciting new projects, the BIS Innovation Hub is now in a stronger position to innovate in a sound, sustainable way, harnessing the benefits of digital technology, serving the public interest, and working cooperatively with the central bank community, academia and the private sector,” said Agustín Carstens, the BIS general manager, in a statement.
The BIS has now mandated its London and Stockholm divisions with their debut projects.
The London centre's first projects will consider how individuals and businesses can benefit from the development of CBDCs.
One of these projects aims to support the development of innovative payment solutions that can be settled quickly and cheaply with central bank money.
Meanwhile, a second project in the London division has been tasked with developing a platform for applications that individuals and businesses can use to store, transfer and pay with retail CBDCs.
The Nordic Centre is running a project to demonstrate how a holistic view of payments data could be used to detect illegal activities, such as money laundering, tax evasion and the financing of terrorism.
A second project at the Nordic Centre aligns more with the BIS’ work in London and will investigate the security and resilience demands, and potential solutions, to enable CBDCs to be used offline.
Elsewhere around the world
CBDC work is also taking place in the BIS hubs’ in Switzerland, Hong Kong and Singapore.
For example, the Swiss Centre and Swiss National Bank are currently compiling the lessons learned from two CBDC-related projects, Helvetia II and Jura.
Last year’s project Jura, which wrapped up in December, was used by the BIS to prove that CBDCs can be used effectively for international settlements.
Moreover, the BIS has confirmed that the Swiss will subsequently be scoping out new CBDC-related projects that may use Arena, an in-house blockchain platform that is being developed as a testing ground for central banks. According to the BIS, potential areas of focus include DeFi applications, monetary policy implementation and privacy.
In South-East Asia, the Singapore team is continuing its investigation of multi-CBDC shared settlement platforms with Project Dunbar. It is also pursuing the second phase of Project Nexus, which seeks to interconnect the national instant payments systems of Singapore, Malaysia and Italy.
Meanwhile, Hong Kong will continue its work on mBridge, which is testing the integration of wholesale CBDCs from four central banks, on Aurum, a retail CBDC prototype.
The green agenda
One of the biggest issues for central banks globally has been the environmental, social and governance (ESG) agenda, which the BIS has opted to tackle this year.
Last year, it published nine discussion papers on the issue, looking at green taxonomies being developed by different jurisdictions, as well as the impact of pricing on green finance. In November, it also launched the Climate Training Alliance portal, which offers resources for central banks and supervisors responding to climate risk.
New work is being undertaken in Hong Kong, with the second phase of the Genesis prototypes, which will further explore the intersection between technology, the financing of green projects and how countries can achieve their carbon reduction targets.
Singapore is also looking at green issues with new Project Viridis. This platform will be tested for supervision of climate-related financial risk and sustainability metrics.
As well as these new projects, the expected opening of the eurosystem and Toronto centres is also due in 2022, as well as the advancement of the strategic partnership with the US’ Federal Reserve System.
