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The Bank for International Settlements (BIS) has announced its first six projects for 2024 under its Innovation Hub work programme. The projects aim to address various challenges and opportunities in the financial sector, such as cybersecurity, combating financial crime, CBDC development, and promoting green finance. Among the projects, two are focused on exploring the potential of blockchain technology for CBDC privacy and tokenization.

Project Aurum: Enhancing CBDC Privacy

One of the projects, dubbed Project Aurum, is a joint collaboration between the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority, and the Hong Kong Applied Science and Technology Research Institute. The project was first announced in October 2023, and is a two-tier retail CBDC system. It involves intermediated CBDC and stablecoins backed by CBDC in the interbank system.

The project is entering a new phase this year, which will explore the privacy of payments in retail CBDCs. The goal is to leverage expertise from academia and privacy regulators to advance central banks’ understanding of privacy in the design of CBDC systems. The project will also examine the trade-offs between privacy and compliance, and the implications for financial inclusion and innovation.

Project Promissa: Exploring Tokenization

Another project, named Project Promissa, is a collaboration involving the BIS, the Swiss National Bank, and the World Bank. The project aims to build a proof-of-concept platform for digital tokenized promissory notes. These notes represent traditional financial obligations, and currently, many of them are paper-based and inefficient.

The project will use blockchain technology to create digital tokens that can be issued, transferred, and settled on a distributed ledger. The project will also assess the benefits and challenges of tokenization, such as interoperability, scalability, security, and legal aspects. The project is expected to be completed by early 2025, and the International Monetary Fund (IMF) will act as an observer to oversee the project developments.

Other Projects: Addressing Diverse Issues

Besides the Aurum and Promissa projects, the BIS is also working on four other projects that cover a wide range of topics. These are:

• Project Leap: A project to develop a platform for testing and evaluating new technologies for combating money laundering and terrorist financing. The project is led by the BIS Innovation Hub Singapore Centre, in partnership with the Monetary Authority of Singapore and the Financial Action Task Force.
• Project Symbiosis: A project to create a cyber range for central banks to simulate cyberattacks and test their resilience. The project is led by the BIS Innovation Hub Nordic Centre, in collaboration with the central banks of Denmark, Iceland, Norway, and Sweden.
• Project Hertha: A project to design and implement a multi-CBDC common platform for wholesale cross-border payments. The project is led by the BIS Innovation Hub Swiss Centre, in cooperation with the central banks of France, Singapore, and Switzerland. The project builds on the successful testing of cross-border settlement for wholesale CBDCs in September 2023, called Project Mariana.
• Project NGFS Data Directory 2.0: A project to enhance the data directory of the Network for Greening the Financial System (NGFS), a group of central banks and supervisors committed to supporting the transition to a low-carbon economy. The project is led by the BIS Innovation Hub Basel Centre, in collaboration with the NGFS Secretariat and the Bank of England.

A Vision for Financial Innovation

The projects were announced by Cecilia Skingsley, who heads the BIS Innovation Hub. She said that the projects reflect the vision of the BIS to foster financial innovation and collaboration among central banks and other stakeholders.

“As the financial industry adopts new technologies, we need to understand how they affect central banks’ core work. Central banks are actively examining the potential for novel technologies to help deliver on their mandates,” she said.

She also highlighted the importance of tokenization, and hinted at more upcoming projects in this area.

“Tokenization is an important area where we have already launched one project and are planning more initiatives. Tokenization can improve the efficiency and resilience of financial markets, and enable new forms of financial services,” she said.

The BIS Innovation Hub was established in 2019 to support central banks in their digital transformation and to foster international cooperation on innovative financial technology. The hub currently has centres in Basel, Hong Kong, Singapore, London, Stockholm, and Toronto, and plans to open new centres in Frankfurt, Paris, and New York this year.