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Today the BIS published the final report on Project Mariana, a wholesale CBDC experiment for foreign exchange (FX) and cross border payments. The project used a combination of public and permissioned blockchains as well as DeFi automated market makers (AMM) to enable commercial banks to make cross border payments using wholesale CBDC (wCBDC). The central banks involved were the Banque de France, the Swiss National Bank and the Monetary Authority of Singapore (MAS).
The foreign exchange market isn’t just the largest market at $7.5 trillion daily, it’s also the one with the most settlement risk. Blockchain enables almost instant settlement or payment versus payment (PvP) which could help to address these significant risks. However, automated market makers (AMM) could increase liquidity requirements.
Project Mariana involves one bank, say in France, requesting wholesale CBDC from the central bank. The commercial bank would then use the central bank’s bridge to move the wCBDC onto the public blockchain. There it exchanged the digital euro for wholesale Singapore dollars using the AMM. And transferred those to the Singapore bank for onward payment.
Project Mariana Key findings
As observed in June’s interim report on Project Mariana, one takeaway was that a central bank can implement governance at the token level without having control of the public blockchain, the Ethereum testnet. Ethereum’s ERC-20 token standard supported the interoperability of the different wholesale CBDCs.
In this final report, the increased liquidity requirements of AMMs was noted.
Conventional FX markets use market makers and bids and offers to arrive at prices. In contrast, automated market makers use liquidity pools with an algorithm determing the transaction pricing. While the original intent of this model was to reduce public blockchain gas charges, it also enables 24/7 automation.
However, these AMM transactions require pre-funding. In contrast, currently most FX transactions use deferred net settlement.
The 24/7 availability of a wholesale CBDC also creates complexity. One example is how to consistently remunerate different forms of central bank money. Another is the security risks introduced by smart contracts.
More to follow.
