Project Mariana: France, Singapore, and Switzerland Test Cross-Border CBDCs with DeFi

Imagine a world where sending money across borders is as seamless as sending an email – instant, low-cost, and secure. This vision is edging closer to reality thanks to groundbreaking experiments in the realm of Central Bank Digital Currencies (CBDCs). Recently, a significant milestone was achieved with Project Mariana, a collaborative effort involving some of the world’s leading financial institutions. Let’s dive into what this project is all about and what it means for the future of global finance.

What Exactly is Project Mariana?

Project Mariana is not just another tech buzzword; it’s a real-world experiment orchestrated by the Bank for International Settlements (BIS) Innovation Hub, along with the central banks of France (Banque de France), Singapore (Monetary Authority of Singapore), and Switzerland (Swiss National Bank). Think of these institutions as the financial heavyweights of their respective regions, coming together to explore the next evolution in money.

The core aim of Project Mariana? To test the cross-border trading and settlement of wholesale CBDCs. Now, wholesale CBDCs are different from retail CBDCs that might be used by everyday consumers. Wholesale CBDCs are designed for use between financial institutions, focusing on large-value transactions and interbank settlements.

This experiment, detailed in a report released by the Banque de France on September 28th, isn’t just theoretical. It’s hands-on, using cutting-edge technology to simulate real-world scenarios.

DeFi Meets Central Banking: A Surprising Combination?

Here’s where things get really interesting. Project Mariana leverages concepts from Decentralized Finance (DeFi), a sector often perceived as being at odds with traditional finance. Instead of viewing DeFi as a competitor, Project Mariana explores how its innovative technologies can be harnessed to improve traditional financial systems.

Specifically, the project utilized DeFi technology concepts on a public blockchain to simulate the trading of hypothetical CBDCs – euro, Singapore dollar, and Swiss franc – between simulated financial institutions. Let’s break down the key technological components:

• Common Token Standard: Imagine a universal language for digital currencies. Project Mariana used a common token standard on the blockchain, ensuring different CBDCs could ‘talk’ to each other.
• Bridges for Seamless Transfers: Think of bridges as digital highways connecting different networks. These bridges facilitated the smooth movement of CBDCs between various simulated networks, mimicking cross-border transactions.
• Decentralized Exchange (DEX) for FX Trading: Traditional foreign exchange (FX) markets can be complex and involve intermediaries. Project Mariana employed a specific type of DEX to automatically trade and settle spot FX transactions. This aims for greater efficiency and potentially lower costs.

This combination of traditional finance with DeFi elements is quite novel and suggests a potential path forward for modernizing cross-border payments.

Why is Project Mariana a Big Deal?

While still in the experimental phase, Project Mariana holds significant implications for the future of international finance. Here’s why it matters:

• Enhanced Efficiency in Cross-Border Payments: Current cross-border payment systems can be slow, expensive, and involve multiple intermediaries. CBDCs, especially when combined with DeFi technologies, could drastically improve the speed and efficiency of these transactions.
• Reduced Costs: By streamlining processes and potentially removing intermediaries, cross-border CBDCs could lead to significant cost reductions for businesses and individuals engaged in international trade and remittances.
• Increased Transparency and Security: Blockchain technology inherently offers greater transparency and security. Applying it to CBDCs could enhance the traceability and security of cross-border transactions.
• Potential for 24/7 Operations: Unlike traditional payment systems that operate during limited banking hours, CBDC-based systems could potentially operate 24/7, facilitating round-the-clock global commerce.
• Exploring Interoperability: Project Mariana tackles the crucial issue of interoperability between different CBDC systems. A common framework for cross-border CBDC transactions is essential for widespread adoption and usability.

In essence, Project Mariana is a step towards creating a more interconnected and efficient global financial system.

Success, But With a Caveat

The participants in Project Mariana have deemed the experiment a success. This is a positive sign, indicating that the technological concepts tested are viable and hold promise. However, it’s crucial to remember the experimental nature of this project.

As explicitly stated in the release:

“Project Mariana is purely experimental and does not indicate that any of the partner central banks intend to issue CBDC or endorse DeFi or a particular technological solution.”

This statement underscores that while the experiment was successful in demonstrating the technological feasibility, it’s not a commitment to immediate implementation or endorsement of specific technologies. Further research and experimentation are definitely on the horizon.

The Broader CBDC Landscape: BIS Leading the Charge

The BIS is playing a pivotal role in driving the global CBDC conversation and experimentation. Project Mariana is just one piece of a larger puzzle. The BIS is actively promoting cross-border CBDCs, and several other pilot projects are underway around the world.

Consider these recent developments:

• Project Sela (Hong Kong & Israel): Just before Project Mariana’s results were released, the central banks of Hong Kong and Israel announced the successful completion of Project Sela. This project focused on retail CBDCs and emphasized privacy and inclusivity.
• Project mBridge (Hong Kong, China, Thailand, UAE): Hong Kong Monetary Authority CEO Eddie Yue recently announced the expansion of Project mBridge. This project, already involving central banks from China, Thailand, and the United Arab Emirates, is moving towards a minimum viable product, signaling a more advanced stage of development for cross-border wholesale CBDCs.

These projects, alongside Project Mariana, highlight a global trend towards exploring and developing CBDCs, particularly for cross-border applications. The BIS is clearly at the forefront, fostering collaboration and innovation in this rapidly evolving space.

Legal Frameworks and the Road Ahead

While the technological aspects of cross-border CBDCs are advancing rapidly, there are still significant hurdles to overcome. One key area is the legal and regulatory framework. As BIS General Manager Agustín Carstens pointed out just before the Project Mariana release, clarifying national legal frameworks is crucial, especially in countries where central banks may not currently have the explicit legal right to issue CBDCs.

Beyond legalities, other challenges include:

• Cybersecurity: Ensuring the security of CBDC systems and preventing cyberattacks is paramount.
• Privacy Concerns: Balancing the transparency benefits of blockchain with the need for user privacy is a complex issue.
• Monetary Policy Implications: The introduction of CBDCs could have significant implications for monetary policy and financial stability, requiring careful consideration.
• International Cooperation: Establishing global standards and frameworks for cross-border CBDCs will require extensive international cooperation and agreement.

Conclusion: A Glimpse into the Future of Global Finance

Project Mariana represents a significant step forward in exploring the potential of cross-border CBDCs. By successfully testing DeFi concepts for wholesale CBDC trading and settlement, it demonstrates a viable technological pathway for enhancing global payments. While still experimental, it adds to the growing momentum behind CBDCs and highlights the proactive role of institutions like the BIS in shaping the future of finance.

The journey towards widespread adoption of cross-border CBDCs is still in its early stages. However, projects like Mariana, Sela, and mBridge provide valuable insights and pave the way for a potentially more efficient, inclusive, and interconnected global financial system. Keep an eye on this space – the evolution of money is underway!