The bank of international settlements (BIS) is launching a market intelligence platform to safeguard against threats to digital assets, part of several projects it is pursuing in its innovation hub.
The Bank for International Settlements is an international financial institution owned by central banks with the role of ‘fostering international monetary and financial cooperation, and serves as a bank for central banks.’
BIS has been in the forefront in fostering collaboration between Central Banks when it comes to CBDCs, including Project Dunbar that includes the South Africa Reserve Bank (SARB).
One of the key threats identified by the bank is quantum computing, a rapidly-emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.
According to BIS, quantum computers may be capable of breaking the cryptography used by central banks and the private financial sector to secure payment and settlement systems. This threatens the confidentiality and could undermine the integrity of payments systems.
Given the long-term sensitivity of financial data, this vulnerability must be addressed well in advance of the advent of quantum computing. This project will investigate and test potential cryptographic solutions that can withstand the vastly improved processing power of quantum computers. The goal is to test use cases in various payment systems and examine how the introduction of quantum-resistant cryptography will affect their performance.
Moreover, the bank said that the collapse of many stablecoins and decentralised finance (DeFi) lending platforms has highlighted the difficulty in assessing their risks and economic potential. One reason is that most data on asset backing, trading volumes, and market capitalization is self-reported by unregulated firms.
In a statement, BIS said:
“Individual datasets and commercially available solutions do not provide comprehensive insights and lack transparency. The project’s goal is to create an open-source market intelligence platform to shed light on market capitalizations, economic activity, and risks to financial stability.”
– Bank of International Settlements (BIS)
The bank is also trying to strengthen CBDC security:
“Most central banks researching retail CBDCs try to emulate the traditional model, known as the ‘two-tier architecture,’ in which money is provided to the public via intermediaries such as banks and payments services providers.
Building on the Bank of Israel’s strengths in cyber security and on the HKMA learnings from the earlier Aurum project, Sela will explore technological solutions to allow intermediaries to provide CBDCs to users without the related financial exposure, reducing risks and costs in the process, combined with a strong focus on cyber security.”
– Bank of International Settlements (BIS)
BIS is also exploring how blockchain, smart contracts and other related technologies will be used for the tracking, delivery, and transfer of so-called digitised Mitigation Outcome Interests – de facto carbon credits recognised under national verification mechanisms compliant with the Paris Agreement – attached to a bond.
BIS includes central banks and monetary authorities as members. In Africa, the following central banks are members that have rights of voting and representation at general meetings:
- Bank of Algeria
- Bank Al-Maghrib (Morocco)
- South African Reserve Bank (SARB)
