Central Banks look to unlock DeFi possibilities in cross-border CBDCs

The Bank for International Settlements (BIS), in collaboration with the central banks of France, Singapore, and Switzerland, has successfully concluded the testing phase of Project Mariana, an initiative focused on the cross-border trading and settlement of wholesale central bank digital currencies (wCBDCs.)

This milestone achievement demonstrates the potential of decentralized finance (DeFi) concepts and public blockchain-based solutions to reshape financial market infrastructures.

Developed by three BIS Innovation Hub centers, Banque de France, the Monetary Authority of Singapore, and the Swiss National Bank, Project Mariana tested trading and settling hypothetical wCBDCs, specifically euros, Singapore dollars, and Swiss francs, between simulated financial institutions.

The project tapped into the potential of three integral elements: a common technical token standard, bridges for seamless transfer of wCBDCs between networks, and an Automated Market Maker (AMM).

The AMM facilitated the automatic pricing and immediate settlement of spot FX transactions. This was achieved by pooling the hypothetical wCBDCs’ liquidity and employing innovative algorithms. These protocols could form the foundation of the next generation of financial market infrastructures, promoting efficient cross-border trading and settlement.

Project Mariana reportedly aimed for a balanced architecture that aligns central banks’ domestic need for oversight and autonomy with financial institutions’ interest in holding, transferring, and settling wCBDCs across borders.

Using a common token standard on a public blockchain facilitated the exchange and interoperability of wCBDC across varied local payment systems maintained by participant central banks. This approach suggests incorporating an international dimension into current wCBDC design explorations.

Need for further research.

While the project marks a significant step in leveraging tokenization and DeFi technologies, the BIS Innovation Hub and its global partners acknowledge the need for further research and experimentation due to the developing nature of these technologies.

Emmanuelle Assouan, Director General for Financial Stability and Operations at Banque de France, emphasized that Project Mariana is a “novel experiment” exploring practical solutions for exchanging multi-CBDCs in a globally interoperable network. She added that the project provides a deep analysis of AMMs, uncovering opportunities for FX markets based on Distributed Ledger Technologies (DLTs).

Despite the successful completion of Project Mariana, it is important to note that the project is purely experimental and does not imply any intention of the partner central banks to issue wCBDCs or endorse DeFi or a particular technological solution. However, Project Mariana was said to provide a solid basis for enhancing cross-border payments and serves as the Innovation Hub’s first cross-center project.

The insights drawn from Project Mariana, as detailed in a report by BIS, offer valuable information on leveraging DLT for cross-border wholesale CBDC settlements and the potential benefits and limitations of using AMMs for FX trading.

Nevertheless, the need for further research and collaboration is evident as the journey toward commercial viability, monetary policy implementation, and the role of wCBDCs in a broader tokenized financial system continues.