- Central banks and private banking join forces to test a way to optimize cross-border payments
- The testing was carried out with tokenized commercial bank deposits
The Bank for International Settlements (BIS) and seven central banks announced a joint project to explore how tokenization can improve the functioning of the monetary system.
The project, called Agora, brings together the central banks of France (representing the Eurosystem), Japan, South Korea, Mexico, Switzerland, England and the New York Federal Reserve. They will work together with a representative group of private financial institutions convened by the Institute of International Finance (IIF).
Building on the distributed ledger concept proposed by the BIS, Agora will investigate the seamless integration of tokenized commercial bank deposits with wholesale tokenized central bank money on a public-private programmable centralized financial platform. This could optimize the monetary system and provide new solutions through smart contracts and programmability while maintaining the current two-tier structure.
Smart contracts would enable new forms of settlement and make possible transactions that are not feasible or impractical today, thus generating new opportunities for businesses and individuals.
This important public-private partnership will seek to overcome the structural inefficiencies in current payments, especially cross-border payments, which face challenges such as:
- Different legal, regulatory, and technical requirements.
- Disparate operating hours and time zones.
- Increased complexity of financial integrity controls (e.g., anti-money laundering and customer verification), which are often repeated for the same transaction depending on the number of intermediaries involved.
As is usual with BIS Innovation Hub projects, their nature is experimental and aims to explore and generate public benefits for the global community of central banks.
Next steps
The BIS will issue a call for interest for private financial institutions to participate in the Agora Project. The IIF will act as an intermediary and organizer of private sector participants. The participation of several regulated financial institutions representing each of the seven currencies involved is expected. Specific instructions and requirements will be communicated shortly. IIF membership is not a requirement for participation.
Additional notes:
- The Agora project is a collaboration between central banks and private banks to explore the use of blockchain technology to improve cross-border payments.
- The project aims to develop a platform that integrates tokenized commercial bank deposits with wholesale tokenized central bank money.
- The use of smart contracts could enable new forms of settlement and make possible transactions that are not feasible or impractical today.
- The project is in the experimental stage and is expected to generate public benefits for the global community of central banks.