The Innovation Hub will also expand its portfolio in the areas of green finance and supervisory and regulatory technology (regtech and suptech). The first three Eurosystem Centre projects are:
Cryptocurrency market intelligence platform
The collapse of many stablecoins and decentralised finance (DeFi) lending platforms has highlighted the difficulty in assessing their risks and economic potential. One reason is that most data on asset backing, trading volumes and market capitalisation is self-reported by unregulated firms. Individual datasets and commercially available solutions do not provide comprehensive insights and lack transparency. The project’s goal is to create an open-source market intelligence platform to shed light on market capitalisations, economic activity, and risks to financial stability.
Post-quantum cryptography: securing the privacy of payments systems
Quantum computers may be capable of breaking the cryptography used by central banks and the private financial sector to secure payment and settlement systems. This threatens the confidentiality and could undermine the integrity of payments systems. Given the long-term sensitivity of financial data, this vulnerability must be addressed well in advance of the advent of quantum computing. This project will investigate and test potential cryptographic solutions that can withstand the vastly improved processing power of quantum computers. The goal is to test use cases in various payment systems and examine how the introduction of quantum-resistant cryptography will affect their performance.
Increasing the transparency of climate-related disclosures
Central banks are increasingly looking into how climate change may affect financial stability, inflation, and other issues within their mandate. However, important data gaps and inconsistencies in data collection make their task more difficult. This project aims to build an open-source database of corporate reports coupled with a full-text search engine to identify sustainability-related disclosures. Machine learning and natural language processing tools will then be used to organise and structure this data.
In addition to the Eurosystem initiatives, the Innovation Hub’s Hong Kong Centre will partner with the Bank of Israel and the Hong Kong Monetary Authority (HKMA) on a new study on central bank digital currency (CBDC) and cybersecurity. It is also starting a new phase of its green finance Genesis project.
More cyber security for a retail CBDC
Most central banks researching retail CBDCs try to emulate the traditional model, known as the “two-tier architecture”, in which money is provided to the public via intermediaries such as banks and payments services providers. Building on the Bank of Israel’s strengths in cyber security and on the HKMA learnings from the earlier Aurum project, Sela will explore technological solutions to allow intermediaries to provide CBDCs to users without the related financial exposure, reducing risks and costs in the process, combined with a strong focus on cyber security.
Green bonds with digitized mitigation outcome interests
The Hong Kong Centre will also start the development of a new prototype for Phase 2 of its green finance project Genesis, in collaboration with the United Nations Framework Convention on Climate Change (UNFCCC), and other public and private parties. In this new phase, blockchain, smart contracts and other related technologies will be used for the tracking, delivery and transfer of so-called digitised Mitigation Outcome Interests – de facto carbon credits recognised under national verification mechanisms compliant with the Paris Agreement – attached to a bond.
In January, the Innovation Hub announced its work programme for 2022, including the first projects in the London and Stockholm centres.