Listen to the Article: “Project Mariana” - France, Switzerland and Singapore Cook up Plans to Revolutionize FX Market

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Decentralized finance (DeFi) constructs open, transparent, composable, and non-custodial financial systems using open blockchain networks and smart contracts. The decentralized trading of tokenized assets via so-called automated market makers (AMMs) is currently one of the primary DeFi operations. The AMMs are actually a type of smart contract that, as opposed to the conventional method of matching buyers and sellers and requesting agreement for each activity, leverages liquidity pools to transfer digital assets automatically.

Central banks must comprehend how DeFi and its applications will affect international payments since they have the potential to become systemically significant components of the financial ecosystem.

Central Banks of France, Switzerland and Singapore Are Making Moves

In an effort to reduce the cost of international transfers, central banks from France, Switzerland, and Singapore are working together to automate the foreign exchange (forex) markets.

Project Mariana, run by the Innovation Hub of the Bank for International Settlements (BIS), examines whether protocols employed in intermediary-free decentralized finance (DeFi) can take the place of more time-consuming, conventional methods for connecting buyers and sellers of various fiat currencies.

"DeFi and its applications have the potential to become systemically important parts of the financial ecosystem," the BIS said in a statement on its website. It added that "automated market makers can become the basis for a new generation of financial infrastructure".

What is Project Mariana?

Project Mariana is an effort to explore how to use AMMs for the cross-border trading of hypothetical Swiss franc, euro and Singapore dollar wholesale CBDCs between financial institutions to settle foreign exchange trades in the financial markets.

Three key goals of the project are to:

(i) investigate the design and use of AMMs for wCBDCs;

(ii) determine whether a supra-regional network may serve as a reliable and effective hub for cross-border settlement; and

(iii) investigate wCBDC governance models within that network.

"This pioneering project pushes our CBDC research into innovative frontiers, incorporating some of the promising ideas of the DeFi ecosystem" said Cecilia Skingsley, Head of the BIS Innovation Hub. "Mariana also marks the first collaboration across Innovation Hub Centres; expect to see more in the future," she added.

More Insight into the Progress

The values between tokenized assets, such as the central bank digital currency (CBDC) that the three countries may choose to issue in the future, are determined by automated protocols using liquidity stores and algorithms.

The BIS, which collaborates with central banks throughout the world on various initiatives, has been looking into whether government-issued digital currencies may be used in regular transactions or financial markets most recently with Project Mariana.

Given that there isn't a clear entity to place expectations on, officials are likewise having trouble regulating DeFi. DeFi was also referred to as an "illusion" in a BIS paper from last December, which claimed that centralized administration was inevitable.