Project FuSSE: Closing technological gaps, while fostering growth and integration
Speech by Mr Agustín Carstens, General Manager of the BIS, at the event on Project FuSSE: Toward a Regional Payment Ecosystem for Latin America and the Caribbean, Washington DC, 18 April 2024.
Good morning, everyone.
I'm delighted to be here, sharing the stage with my good friend Ilan Goldfajn in the context of this ambitious and important collaboration between the Inter-American Development Bank (IDB) and the Bank for International Settlements (BIS). The topic at hand – the modernisation of payment systems and digital financial infrastructures – is a critical stepping stone to the digitalisation of finance and of the economy. And, more broadly, it will help support economic growth and development in the region.
In recent decades, advances in digital technology have transformed people's lives. The financial sector is no exception. Yet, we find ourselves at a critical point in the evolution of finance. The digitalisation of the economy is changing expectations about the financial system and the way we need to approach the provision of financial services going into the future. These changes come from both the demand and the supply side.
From the demand perspective, financial inclusion is no longer a mere aspiration but a critical necessity. In this digital age, being financially connected is akin to holding the key to societal participation. Thus, we need to open access to everyone. This means bringing many more people into the financial system.
At the same time, individuals with access to the financial system are making more use of it than ever before. This growth will continue in the foreseeable future, supported by the emergence of technologies like the Internet of Things and artificial intelligence, through which people have their devices automatically make transactions on their behalf.
Thus, we need systems that allow more people to participate and for each participant to make more transactions. All told, this will multiply the volumes the financial system needs to settle.
From the supply perspective, the infrastructures that underpin current financial markets were designed for a different era. Some are teetering on the edge of obsolescence. These systems, built to accommodate the transactions and dynamics of traditional financial players, are buckling under the strain of unprecedented transaction volumes and the diversification and growth of market participants. Existing frameworks are ill-equipped to handle the velocity and complexity of modern financial exchanges. This creates inefficiencies that ripple through the economy. We must evolve our infrastructure into something new and more sophisticated, capable of handling an increased load securely and efficiently.
The dire consequences of inaction in the face of growing demand and the slow and inefficient response of supply are easy to predict. Fortunately, the challenge is still manageable if we start working as a community on tangible solutions today. We need to invest and experiment now if we want the financial system to properly support the digital economy in the coming years.
The call to action is clear: we must push for the development of next-generation payment systems and financial market infrastructures that can rise to the challenge. These advanced systems must accommodate the sheer volume and variety of transactions, while also embracing the influx of new entrants and new services that are reshaping the financial landscape. We should forge infrastructures that are robust, adaptable and forward-looking, capable of sustaining the lifeblood of economic activity through efficient payment and settlement mechanisms.
Given the daunting challenges, the size and complexity of the potential solutions, and the need for regional and global cooperation, the BIS has decided to partner with the IDB to harness the competitive advantage of each institution and push forward. The BIS, through its Innovation Hub, is a front-runner in many aspects of financial technology. Next generation financial market infrastructures are one of the Innovation Hub's six key focus areas. And the IDB has a deep relationship with the countries in the Americas region, has powerful mechanisms to support them and possesses deep knowledge about local financial systems. Together, we can make a real difference.
Our first joint project is the fully scalable settlement engine, or FuSSE for short. This project is a stepping stone that can help countries develop the core functions necessary to build more advanced solutions. If we want to build for the future, foundations must be solid and at the same time ready to support fast changing conditions and requirements. This implies a profound technological shift from existing models. FuSSE consists of pieces of technology that provide expandible basic settlement functions to enable the development of next generation payment systems and financial market infrastructures for the region and beyond, helping solve the exponential growth problem I have described.
FuSSE's functioning is simple: it will receive settlement instructions from institutions or individuals, it will register the modifications of balances, and it will provide proof of settlement in real time. As with everything, the devil is in the details, as the complexity lies in providing these functions with security, scalability and flexibility, and with a structure that will allow it to evolve with the technology and the needs of the financial system.
The system will be a module that can be implemented in different jurisdictions with different payment systems. Eventually it would be able to support other infrastructures that will require the settlement of a broad gamut of digital representations of assets.
Once it has achieved a sufficient critical mass, FuSSE could also enable the integration of national payment systems, creating an efficient regional network.
Jurisdictions could plug FuSSE into their own backends. Countries would then have their own domestic structures surrounding the core functionality. This would reduce the potential disruption to the financial sector by just replacing the inner engine of their infrastructures and reusing parts of the existing systems that could be very difficult to replace. The same goes for the settlement of other types of assets that can be represented on similar ledger structures. Securities ownership is one example.
As its name anticipates, the system has an architecture that delivers settlement scalability in three dimensions: as many transactions as necessary; as many entities, individuals or devices directly instructing the system as necessary; and as many asset types as required. These conditions make the system a powerhouse for faster payment systems, securities settlement systems and even for the potential implementations of retail central bank digital currencies.
Given the scope for FuSSE to support the whole financial sector, we need to build and design it considering cyber security and resiliency. One cannot think about financial market infrastructures without security being a fundamental requirement. We also need to consider their ability to recover and continue to provide their basic services under stress. FuSSE will have cyber security embedded from the beginning, including resistance to future quantum computing threats. Modularity will permit jurisdictions to build resiliency through disaster recovery plans to be used during contingencies to keep the systems running.
One final technical point is that the system is designed for every jurisdiction, regardless of its size. We are using open source components wherever possible and prioritising a philosophy of efficiency to make the implementation of this module feasible even for the smallest countries.
Let me conclude. I strongly believe that FuSSE is a key step in the direction of building infrastructures and adopting technologies to meet the extraordinary increase in society's demands from financial services that we are witnessing today and that will accelerate in the future. It can help bridge some of the technology gaps between countries and contribute to resolving the financial inclusion problems that many of our nations face. These endeavours could also contribute significantly to the economic integration of the region.
