A new report from the Bank for International Settlements (BIS), in partnership with the central banks of France, Singapore and Switzerland, explores how central bank digital currencies (CBDCs) and automated market maker technology could transform foreign exchange trading.

The “Project Mariana” report outlines a proof-of-concept that simulates cross-border transactions and settlements of euro, Singapore dollar and Swiss franc CBDCs between financial institutions.

Project Mariana successfully tested a 24/7 wholesale CBDC ecosystem and an interbank foreign exchange market powered by an automated market maker (AMM). An AMM is a smart contract that facilitates decentralized trading by algorithmically matching buyers and sellers using liquidity pools, rather than the order books used on centralized exchanges.

Cecilia Skingsley, head of the BIS Innovation Hub, said: “Project Mariana has successfully demonstrated that cross-border wholesale CBDC using novel concepts such as automated market makers is feasible.”

The BIS found that central banks could eliminate settlement risk by using token-based CBDCs from different countries, bridges between domestic and international networks, and AMMs for instant FX execution and settlement.

The BIS found that automated market makers could eliminate settlement risk in current FX markets, with settlement typically occurring 1-2 days after a trade. However, the report noted that this benefit leads to higher liquidity requirements for AMMs, which require pre-funded liquidity pools. #DeFi  #CBDC