Like crypto or not, central banks need to prepare, BIS innovate head says
The jury is out on cryptocurrencies, but tokenization could be revolutionary, BIS says
Andre Boukreev/Shutterstock modified by Blockworks
The Bank for International Settlements knows it has to stay ahead of the curve, and that means getting its hands dirty, Cecilia Skingsley, head of the Innovation Hub at the BIS said.
“Our project portfolio is my biggest pride,” Skingsley said during a discussion at the New York Fed Conference on Fintech: Artificial Intelligence and Digital Assets in Manhattan on Friday. “I think that it distinguishes us from many similar operations because we actually get our fingers into the technology and report our findings to the community.”
The Innovation Hub is tasked with researching and investigating how new technologies, including crypto, are and can change how central banks operate. The BIS knows it cannot afford to ignore the digital asset space, Skingsley said.
“On the back of the Libra experience back in 2019, and all that followed, it really made everybody realize that there is too much going on in the tech space that we can’t just ignore.”
In the BIS’ most recent report, researchers found that tokenization has huge potential in increasing efficiency and transparency in financial markets. Cryptocurrencies themselves however have yet to demonstrate their value, the report added.
Read more: Financial giant Deutsche Bank eyes crypto custody, tokenization
“Crypto and decentralized finance (DeFi) have offered a glimpse of tokenisation’s promise, but crypto is a flawed system that cannot take on the mantle of the future of money,” researchers wrote in the report, titled “BIS Blueprint for the Future Monetary System.”
Regardless, central banks need to be prepared, Skingsley said.
“If the future is tokenized, if we’re going for a future where we will have tokenized assets on a broad scale, what would that mean for central banks?” Skingsley said. “What sort of infrastructure do you have to have?”
The BIS Innovation Hub has been in partnership with the New York Innovation Center (NYIC), which operates under the New York Federal Reserve, since 2021. Engaging with central banks is an important tool the Innovation Hub has to target problems facing the global financial system, Skingsley said.
The NYIC is currently in the process of exploring how distributed ledger technology can enhance cross-border payments, a program dubbed Project Cedar. Its first phase of research found that “blockchain could enable faster, simultaneous, and safer cross-border payments,” the NYIC said.
“We’re in the beginning of a beautiful friendship and a beautiful collaboration,” Skingsley said of the partnership. “Stay tuned, there will be more in the public eye in a couple of months.”
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