Bank for International Settlements (BIS) Innovation Hub Update

In 2023, the BIS Innovation Hub (BISIH) will increase its focus on improving payments systems and experimenting with central bank digital currencies (CBDC); on shaping the future of financial regulation and supervision; and on greening and securing the financial sector. There are now too many projects to list here, so please go to the BISIH home page for more details. However, a few projects in particular seem to be catching eyes:

• The Hub’s London Centre Project Pyxtrial aimed at exploring technology solutions enabling the monitoring of liabilities of fiat-backed stablecoins and the assets that back them. Pyxtrial aims to develop a prototype data-analytic pipeline, including data collection, storage, and analytics, to investigate possible asset-liability mismatches. The technology could be used to help supervisors and regulators build policy frameworks based on integrated data.
• The Hub’s Nordic Centre Project Aurora will investigate the use of advanced technologies, such as privacy-enhancing technologies, machine learning methods, network analysis, and the use of additional data sources and machine-readable typologies (to represent money laundering patterns in a machine-readable format) in a proof of concept that aims to show how information could be shared in a private, secure and compliant way to detect suspicious transactions across financial institutions and borders.
• The Nordic Hub’s Project Polaris is exploring the provision of offline CBDC payments functionality, which could address requirements for resilience, crisis robustness, financial inclusion, cash resemblance, accessibility and other desiderata. Central banks considering the potential implementation of CBDCs with offline functionality must take into account issues such as security, privacy, risks, the types of solution, their maturity and applicability, and operational factors, among others.

[For the full array of BISIH projects go to the BISIH Hubs directory]

The Pix Story; A Glimpse Into The Future of Instant Payments in the U.S.

Matera published a nice paper on the Banco Central do Brasil’s Pix hyper-successful retail payment system, which is arguably a synthetic CBDC platform. I thought that the paper’s summary of Pix’s success factors have some good lessons for central bank CBDC designers: So how did Pix become such a success?

• The central bank mandated participation by banks and other payment institutions with more than 500,000 transaction accounts. This created a critical mass of users and kick-started the network effects so that the open-loop payment platform could gain traction. The central bank amplified this mandate by facilitating community among the financial institutions participating in Pix. Prior to launch, they organized in-person meetings periodically to update everyone on key milestones and future plans. They solicited input to key decisions and created working groups to tackle specific issues.
• Pix is available to any financial and payment institution licensed by the central bank that offers transaction accounts. Open participation was further fostered by allowing an indirect model of integration that significantly reduces the cost (eg connectivity costs associated with a direct integration).
• A consistent, simple and quick user experience was enforced by the central bank, including a flexible alias directory (based on phone numbers, email addresses or randomly generated string of characters), and standardized API and QR code technology.
• Pix is significantly cheaper for merchants (Pix charges 0.25% of the transaction amount versus 1-2% for credit cards and 3-4% for credit cards. Also with credit card transactions, the merchant may have to wait up to 30 days for their money.

[Download the paper here]

Upcoming conferences, webinars and speaking engagements:

• I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]

Kiffmeister’s global central bank digital currency monthly monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

The Sovereign Official Digital Association (SODA) is a technology-agnostic firm offering advisory services at the intersection of central banking, digital finance and the web3 industry, aiming to make public digital money a reality. SODA believes institutions in the existing financial ecosystem should have access to the tools and resources they need to move from discussion to action. SODA offers ‘real life’ use cases to help test digital money and drive adoption as central banks and other public institutions explore the future of a more financially inclusive world powered by interoperable blockchain-based networks. SODA would love you to join us on this journey – please get in touch (chris@sodapublicmoney.org).

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]