France, Switzerland, Singapore to Test DeFi in Forex Markets

Central banks from France, Switzerland and Singapore are attempting to automate foreign exchange markets, using decentralized protocols to cut the cost of cross-border payments.

Project Mariana, coordinated by the Innovation Hub of the Bank for International Settlements (BIS), is looking at whether protocols used in intermediary-free decentralized finance (DeFi) can replace traditional, more laborious processes for matching buyers and sellers of different 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."

Those automated protocols use stores of liquidity and algorithms to determine the prices between tokenized assets – such as the central bank digital currencies (CBDC) the three countries may decide to issue in the future.

Project Mariana is the latest in a series of projects hosted by the BIS, which works with the world’s central banks, to examine whether state-issued digital currencies could have applications in everyday transactions or financial markets.

Meanwhile, officials are also struggling with how to regulate DeFi, given that there’s no obvious entity to heap obligations on. One study from the BIS last December even called DeFi an “illusion,” saying that centralized governance is inescapable.

Read more: Foreign Exchange Transactions Take Center Stage in New BIS CBDC Report