The headquarters of the Bank for International Settlements, in Basel, Switzerland, on March 18, 2021.Arnd Wiegmann/Reuters
After a two-year delay, the Bank for International Settlements has formally opened a research and development centre in Toronto to build financial technology for central banks around the world.
It’s the seventh “innovation hub” launched by the BIS, a Swiss-based organization often referred to as the central bank for central banks. Other hubs are operating in cities such as London, Paris and Singapore.
BIS hubs are essentially startups within the central banking community – small organizations tasked with developing fintech prototypes that can be used by the 63 members of the BIS, central banks such as the Bank of Canada. The Toronto office, which has been operating unofficially for the past year or so, is focused on payment settlement software.
“What we’re doing is kind of like the big-city plumbing. … In financial terms, what this is, basically, is the engine in the backend of a payment system,” said Miguel Diaz, a former Bank of Mexico official who is leading the Toronto BIS operation.
“So we build the big pipes for the city, and then the private sector and everyone is basically building the faucets and showerheads.”
The BIS launched the innovation-hub program in 2019 with the goal of developing digital “public goods.” The worldwide shift toward online payments has forced central banks to play catch-up with the private sector to maintain their position at the core of an increasingly digital financial system.
Some of the hubs are developing technology to enable central bank digital currencies – digital versions of fiat money, which dozens of central banks around the world are considering. Other hubs consider issues such as cybersecurity and green finance.
One concern for central bankers is that key parts of the financial system could become owned and operated by large technology companies. This fear was catalyzed when Meta, then called Facebook, started developing its own digital currency. The project was later abandoned.
“You have giant global firms that might have different objectives, not necessarily as aligned with social welfare and the benefits of society. And they can do research and development once and apply solutions for a billion people,” Mr. Diaz said.
“So we need to generate this sort of communal, public-private partnership in which we build things from that perspective up to scale, that could grow globally.”
The Toronto BIS hub will have a small team of about a dozen people, mostly software engineers and information technology professionals. It’s working alongside the Inter-American Development Bank, a development finance institution based in Washington, D.C., to build payment settlement software that could be deployed throughout the Americas, and it has signed a deal to work with Chile’s central bank, Mr. Diaz said.
He said he’s also had conversations with Payments Canada, which operates the country’s clearing and settlement system, although there is no formal partnership between the two organizations. Payments Canada is building a new system called the Real-Time Rail that will allow for much faster settlement, although the launch has been delayed a number of times.
Plans for the Toronto BIS hub were first announced in 2020, with the goal of having it up and running by 2022.
“There are some legislative requirements involved when an international institution like the BIS establishes a presence in a country,” Mr. Diaz said. “Our experience with opening the other six centres has shown that the statutory process differs in each location and this process can take time.”