Bank for International Settlements announces new tokenization project

10 months ago 66

Tokenization of promissory notes

On the 23rd, the Bank for International Settlements Innovation Hub (BISIH) announced the first of six new business plans for 2024. Plans include experiments in cybersecurity, financial crime prevention, central bank digital currencies (CBDCs), and green finance.

Cecilia Skinsley, who oversees BISIH, cited tokenization as a key area. One of the business plans announced today includes a multi-jurisdictional tokenization project called Promissa, which he described as “our most ambitious project to date in terms of partners.”

Project Promissa is a joint experiment between the BISIH Swiss Center, the Swiss National Bank, and the World Bank that aims to create a proof of concept (PoC) of a tokenized promissory note platform. The International Monetary Fund (IMF) is participating in this project as an observer.

According to BIS, promissory notes are used by many international financial institutions, including multilateral development banks such as the International Bank for Reconstruction and Development (IBRD), and despite playing an important role in the financial system, the majority of them remain It’s paper-based. Project Promissa uses distributed ledger technology to simplify the management of promissory notes and improve operational efficiency.

BISIH aims to complete PoC by early 2025.

Project Promissa aims to simplify the management of promissory notes between member states and international financial institutions, and in the future The company is also considering the possibility of expanding the service to include bill-related payments and cash conversion.

Tokenization is a key development

In its 2023 annual economic report, BIS laid out a “blueprint for a future monetary system” that leverages the reform potential of tokenization.

The report points out that the monetary system is undergoing a major transformation, and that tokenization is an important development following dematerialization and digitalization. It defined tokenization as “the process of digitally representing debt on a programmable platform.”

The BIS blueprint envisions a new financial market infrastructure that will bring together CBDCs, tokenized deposits, and other financial and real assets such as tokenized bonds in one place. ing.

Hyun Sung Shin, economic advisor at BIS, says the following about the concept of an integrated ledger.

Bringing central bank money, commercial money, and various assets together on the same platform, tokenizing everything, and making them interact opens up entirely new possibilities. This will revolutionize how we think about money and how transactions are done.

CBDC project

The new business plan also includes a CBDC project.

BISIH Hong Kong Center will launch research focused on payment privacy in retail CBDCs as a new phase of ‘Project Aurm’.

What is CBDC?

Refers to digitized currencies issued by the central banks of each country or region. Abbreviation for “Central Bank Digital Currency.” The major difference from virtual currency is that CBDC is legal tender.While it is expected to reduce costs and improve efficiency in currency management and payments, there are many issues to consider, such as protection of personal information and privacy, security measures, and impact on the financial system.

Virtual currency glossary

Project Aurm is a project to build a prototype retail CBDC. The central bank issues and redeems CBDC, but distribution and payment services are outsourced to the private sector. Implemented in collaboration between BISIH Hong Kong Center, the Hong Kong Monetary Authority and the Hong Kong Institute of Applied Science and Technology, the prototype was completed in July 2022.

The goal of this new phase of the project is to leverage the expertise of academia and privacy regulators to advance central banks’ understanding of privacy in the design of CBDC systems. This highlights BIS’s efforts to develop a responsible CBDC while protecting individuals’ financial privacy.

With the introduction of CBDC, there are concerns that the issuer’s central bank will be able to access the financial information of the general public, which could seriously infringe on privacy.

In the United States, in September last year, the House of Representatives Financial Services Committee passed a bill to prevent public surveillance by CBDC, and the bill will now be debated in the House of Representatives. Most recently, former US President Donald Trump clearly expressed his opposition to CBDCs, stating at a rally in the run-up to the November presidential election that he would “never allow the creation of CBDCs.”

BREAKING: Trump announces he will never allow the creation of a CBDC in the United States.#NewHampshire pic.twitter.com/l37c0fqMEa