BIS Innovation Hub
Mandate and Swiss Centre
The BIS Innovation Hub was set up in 2019 and maintains centres in Switzerland, Hong Kong, Singapore, London and Stockholm, with further centres soon to open in Paris/Frankfurt and Toronto. In addition, a strategic partnership has been established with the Federal Reserve Bank of New York. The Hub's aim is to gain in-depth insights into relevant technological developments affecting central banking, and to develop public goods in the technology space geared towards further improving the functioning of the global financial system. Employees of the BIS and the SNB work on various projects at the BIS Innovation Hub's Swiss Centre, with offices in Basel and Zurich. A selection of current and concluded projects is presented below.
Projects at the Swiss Centre
Project Helvetia involves collaboration between the SNB, the BIS and SIX Group Ltd, operator of the Swiss financial market infrastructure. The focus is on the integration of a central bank digital currency into a financial market infrastructure for the custody and transfer of tokenised securities based on distributed ledger technology (DLT). In an initial phase, two approaches were explored and tested: first the issue of central bank tokens for financial institutions, known as wholesale CBDC, and second the creation of an interface between DLT-based financial market infrastructure and the Swiss Interbank Clearing payment system.
The final report, which appeared in December 2020, indicates that both approaches are technically feasible and can be implemented under civil law within Switzerland's legal framework. The project also highlighted advantages and disadvantages of a token solution compared to the interface approach. These will be analysed in more detail in a second phase. Furthermore, the project will be expanded to include the integration of wholesale CBDC into the accounting systems of banks and the SNB, and to run in a cross-border context. This phase of the project, too, serves exclusively to develop a better understanding of CBDC for financial institutions and to gather relevant experience. The final report of Project Helvetia (in German and English) and explanatory videos (in English) are available via the link below.
Project Jura explored settling foreign exchange (FX) transactions in euro and Swiss franc wholesale CBDCs as well as issuing, transferring and redeeming a tokenised euro-denominated French commercial paper between French and Swiss financial institutions. It continues the experimentation conducted by the SNB and the BIS Innovation Hub under Project Helvetia and is part of a series of wholesale CBDC experiments initiated by the BdF in 2020.
The experiment explored the direct transfer of euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single distributed ledger technology platform operated by a third party. Tokenised assets and foreign exchange transactions were settled safely and efficiently using payment-versus-payment and delivery-versus-payment mechanisms. The experiment was conducted in a near-real setting, used real-value transactions and met current regulatory requirements.
Issuing wholesale CBDCs on a third-party platform and giving regulated non-resident financial institutions direct access to central bank money raises intricate policy issues. Jura explored a new approach including subnetworks and dual-notary signing, which may give central banks comfort to issue wholesale CBDCs on third-party platforms and to provide non-resident financial institutions with access to wholesale CBDCs.
Project Jura contributes to the ongoing G20 work on cross-border payments. The experiment is of exploratory nature and should not be interpreted as an indication that the BdF or the SNB plan to issue wholesale CBDCs.
Project Helvetia Phase II
Project Helvetia Phase II continues the exploration of tokenised asset settlement in wholesale central bank digital currency (CBDC) that was started by Project Helvetia Phase I in 2020. It is a joint experiment by the Bank for International Settlements (BIS), the Swiss National Bank (SNB) and SIX. Phase II also included five commercial banks.
The project shows that a wholesale CBDC can be integrated with existing core banking systems and processes of commercial and central banks. Issuing a wholesale CBDC on a distributed ledger technology (DLT) platform operated and owned by a private sector company is operationally and legally feasible under Swiss law. The experiment explored the settlement of interbank, monetary policy and cross-border transactions on the test systems of SIX Digital Exchange (SDX), the Swiss real-time gross settlement system - SIX Interbank Clearing (SIC) - and core banking systems.
Project Helvetia looks toward a future in which more financial assets are tokenised and financial infrastructures run on DLT. It is of an exploratory nature and should not be interpreted as an indication that the SNB plans to issue a wholesale CBDC.
Project Rio is developing a prototype of a platform for monitoring fast-paced markets. In recent decades, new technologies have sharply accelerated the pace of trading, for example on foreign exchange markets. Trading is also increasingly fragmented, i.e. takes place on ever more platforms in parallel. This poses a challenge to central banks when it comes to tracking these developments in such fast-paced markets. The prototype developed at the Swiss Centre should enable the rapid market movements and large volumes of data emanating from various trading centres to be processed in real time. This will provide central banks with an instrument for monitoring and analysing trading conditions.
Project Mariana explores automated market makers (AMM) for the cross-border exchange of hypothetical central bank digital currencies (CBDCs) in Swiss francs, euros and Singapore dollars between financial institutions to settle foreign exchange trades in financial markets.
Mariana uses decentralised finance (DeFi) protocols to automate foreign exchange markets and settlement, potentially improving cross-border payments (and supporting a priority of the G20). Today, DeFi built on public blockchains uses smart contract protocols to automate markets for crypto and digital assets. AMM protocols combine pooled liquidity with innovative algorithms to determine the prices between two or more tokenised 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. Mariana involves the Switzerland, Eurosystem and Singapore BIS Innovation Hub Centres together with the Banque de France, the Monetary Authority of Singapore and the Swiss National Bank.