BIS to research prototype DLT green bond platform

Innovation hub sets up international network to share knowledge and address problems
BIS with flags
Dan Hinge

The Bank for International Settlements’ innovation hubs will create a distributed ledger prototype to test the distribution of “tokenised green bonds”.  

In a statement today (January 22), the BIS hubs outlined their priorities for 2021, which will focus on six core topics. Other projects will focus on central bank-issued digital currencies (CBDCs) and regulatory reporting.

The BIS has also launched a new innovation network to support the work carried out by its innovation hubs. Benoît Coeuré, head of the BIS innovation hubs, says the research will explore “in the most practical ways how best to harness technological change for the benefit of central banks”.

Green finance, cyber security and open finance are among the six priorities. The hubs will also continue to explore CBDCs; supervisory and regulatory technology, or suptech and regtech; and developing financial market infrastructure.

The Hong Kong hub, working with the Hong Kong Monetary Authority, will create the prototype DLT platform to test whether tokenised green bonds can be distributed to investors.  

The Hong Kong hub will also launch a new research project to examine prototype “tiered retail CBDC distribution architectures”. In particular, the project will focus on the security and scalability of these platforms, which could be used for CBDC issuance in the future.

The Switzerland-based hub and the Swiss National Bank will continue their research on wholesale CBDCs through a new proof of concept. The project will examine whether a multiple wholesale CBDC network can be used to make cross-border payments cheaper and faster.

The BIS says this will probably build on the work of the BIS hubs’ Foundation Digital Infrastructure project, which is developing a blueprint for an advanced cross-border payments network.

In Singapore, the BIS hub will create a proof-of-concept regulatory reporting platform with the Monetary Authority of Singapore. The platform will use new analytics and data visualisation tools to provide supervisors with “deeper and timelier insights” into risk.

The International Swaps and Derivatives Association will also collaborate on this project, Central Banking understands. Its common domain model currently establishes a common digital representation of trade events and process.

While the four planned projects will largely be driven by the existing three innovation hubs, the BIS says other initiatives will be undertaken by new hub centres. In June 2020, the BIS announced it was planning to establish hubs in London, Stockholm and Toronto. A joint hub will also be established in Frankfurt and Paris.

Central Banking understands the BIS hubs plan to extend their co-operation to regional development banks, to ensure emerging markets can increase their involvement in future projects.

Growing network

On January 19, the BIS hubs launched a new innovation network. All 63 BIS members have been invited to participate.  The BIS says the network will support the hubs’ priorities, share knowledge about technology projects and discuss answers to problems relevant to central banks.  

The network has set up six working groups, each focusing on an area of the BIS’s new work programme. Susan Slocum, senior manager of the Reserve Bank of Australia’s innovation hub will chair the suptech and regtech working group. Siritida Ayudhya, the Bank of Thailand’s assistant governor for payment systems, will chair the group working on financial market infrastructure.

Marius Jurgilas, a board member at the Bank of Lithuania, has been chosen to lead the CBDC working group. Aristides Andrade Cavalcante Neto, who leads the Central Bank of Brazil’s cyber security and technological innovation office, will chair the open finance working group.

The cyber security working group will be chaired by Tomer Mizrahi, who is chief technology officer at the Bank of Israel. Central Banking understands that cyber security will be the focus of one of the BIS’ new innovation centres.

Sharon Donnery, deputy governor at the Central Bank of Ireland, will chair the green finance working group.

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