BIS Unveils Its Plans for CBDC and Tokenization
The Bank for International Settlement (BIS) has launched 6 new projects for 2024. Some of these projects deal with cybersecurity issues, combatting financial crimes, green finance, tokenization, and CBDCs.
Second Phase of the CBDC Pilot Project
As per the media reports, the innovation hub of BIS is set to carry out the second phase of a new Central Bank Digital Currency (CBDC) privacy pilot. The same department is also going to introduce a blockchain-backed tokenization project in 2024.
As of 23rd January, BIS has finalized the work program for the ongoing year. On this account, the project consists of six distinct parts that explore the matters associated with security, financial scams, green finance, tokenization, and CBDCs.
Cecilia Skingsley, the head of the BIS innovation hub, has noted that the scope of these projects is inclusive of an important technology namely tokenization. The project is dubbed as Promissa and will soon be followed by additional initiatives.
CBDC Innovation Project
BIS officials have also shared some important details regarding, Project Aurum which is conducted in tandem with the Hong Kong Monetary Authority (HKMA). This new project is set to start a new phase of research and retail payment options via CBDCs.
For 2022, the HKMA finalized a wholesale interbank transaction network, digital wallet, in addition to a retail CBDC model as part of the Aurum project.
At the same time, 4 new projects have branched out of BIS namely, Leap, Symbiosis, Hertha, and NGFS Data Directory 2.0. However, these projects do not have a direct link with the digital currency sector. The bank has decided to keep working on Project Mandala. This project will automate compliance for cross-border payments.
Another project named Pyxtrail is directed towards supervising the asset-backed stablecoin balance sheets. At the same time, there is project Cambridge that is conducting tests for a multi-CBDC forum to facilitate international payment options.
Basel Committee Adds Maturity Limit
The Basel Committee of BIS published a document in December 2023 regarding potential regulatory requirements for stablecoin projects. The document deals with the standardization of adjustment bank exposure to cryptocurrencies.
One of the provisions in the document deals with a defined class of cryptocurrencies that have a stabilization mechanism claiming that they are subjected to capital requirements in the proportion of risk exposure of the backing reserves.
The legislators have talked about a maximum maturity limit to be added to individual reserves. The document retains that in the case of long-term backing assets, the issuers may use over-collateralization to retain value during high volatility.
The document has noted that stablecoin issuers may comply with a predetermined list of backing assets of high credit quality applicable to Central bank reserves and sovereign-backed securities. The committee will receive comments on the document by 28th March 2024.
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