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BIS reveals details of public-private cross-border payments tokenisation ambition

BIS: The Switzerland-headquartered financial institution has today (3 April) announced details of a major public-private initiative – dubbed ‘Project Agorá’ – exploring how tokenisation of wholesale central bank money and commercial bank deposits on programmable platforms can improve the monetary system

The Bank for International Settlements (BIS) and seven of the world’s most technologically engaged central banks are teaming up with the private sector to explore how tokenisation – an increasingly hot topic in global finance – can improve the functioning of the monetary system.

Bank of France (representing the Eurosystem), Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York will work together on ‘Project Agorá’ (Greek for ‘marketplace’), partnering a ‘large group’ of financial companies convened by the Institute of International Finance (IIF), the Washington DC-headquartered global finance industry association.

‘This major public-private partnership will seek to overcome several structural inefficiencies in how payments happen today, especially across borders,’ Switzerland-headquartered BIS states in today’s (3 April) Project Agorá announcement. The primary area of exploration will be to increase the speed and integrity of international payments, while lowering costs.

The announcement describes current impediments as including different legal, regulatory and technical requirements, operating hours and time-zones, as well as the complexity of carrying out financial integrity controls – for example, against money laundering and customer verification – which, it states, ‘are often repeated several times for the same transaction, depending on the number of intermediaries involved.’

Details of Project Agorá are announced just over a couple of months after BIS Innovation Hub head Cecilia Skingsley told a media briefing (ahead the publication of BIS Innovation Hub’s 2024 work programme) that the Switzerland-headquartered organisation was ‘lining up what is probably going to be our most ambitious project yet in terms of partners, exploring tokenisation in a sort of multi-jurisdiction way’.

RELATED ARTICLE BIS Innovation Hub highlights tokenisation ambition in 2024 work priorities – a news story (23 January 2024) on the BIS Innovation Hub’s fourth annual work programme

‘Unified Ledger’ plan

Project Agorá will build on the ‘unified ledger’ concept about which BIS general manager Agustín Carstens spoke in a speech (‘Innovation and the future of the monetary system’) in February last year. The concept was then detailed in a special chapter of BIS’s annual economic report for 2023, which was published in June.

It will specifically investigate how tokenised commercial bank deposits can be ‘seamlessly’ integrated with tokenised wholesale central bank money in a public-private programmable core financial platform. This could ‘enhance the functioning of the monetary system and provide new solutions using smart contracts and programmability, while maintaining its two-tier structure’, BIS states in its announcement, adding that ‘smart contracts can enable new ways of settlement and unlock types of transactions that are not viable or practical today, in turn offering new opportunities to benefit businesses and people.’

At the media briefing in January on the BIS Innovation Hub’s 2024 work programme, Skingsley said that BIS planned to ‘line up partners from different countries and explore (a) multi-currency ledger for cross-currency transactions, given [BIS’s internal] approval process going our way, obviously’. Approval has now been granted. BIS Innovation Hub projects would typically involve significantly fewer participants.

“Today, numerous payment systems, accounting ledgers and data registries require other complex systems to integrate them,” Skingsley says in the Project Agorá announcement. “We want to explore a new common payment infrastructure that could bring all these elements together and might make the system work more efficiently together on a digital core financial infrastructure.”

“We will not just test the technology, we will test it within the specific operational, regulatory and legal conditions of the participating currencies, together with financial companies operating in them,” Skingsley states.

RELATED ARTICLE BIS releases ‘game-changing’ blueprint for global financial system – a news article (20 June 2023) on the special chapter of BIS’s 2023 annual economic report that detailed the ‘unified ledger’

Getting with the programme(ability)

The ‘Blueprint for the future monetary system: improving the old, enabling the new’ chapter of BIS’s 2023 annual economic report assessed that the monetary system ‘stands at the cusp of [a] major leap’.

‘Following dematerialisation and digitalisation, the key development is tokenisation – the process of representing claims digitally on a programmable platform,’ the chapter stated (BIS’s fuller explanation of tokenisation can be found at the end of this article).

‘Bringing together central bank money, commercial money, and different assets on the same platform, all tokenised and interacting, opens up a whole new range of possibilities. This would be a game-changer in how we think about money and how transactions take place,’ said BIS economic adviser and head of research Hyun Song Shin at the time. In answer to a Global Government Fintech question during a BIS media briefing ahead of the chapter’s release about what BIS wanted to happen next, Shin responded that this was the ‘central question’. He said that he envisaged ‘a great deal of alignment’ between central banks and the private sector around the possibilities and that the ‘next step’ was to ‘bring the two parts together’.

“Tokenisation combines the record-keeping function of a traditional database with the rules and logic that govern transfers,” Shin says in today’s Project Agorá announcement.

“With Project Agorá, we aim to improve existing capabilities and enable new ones, all based on the proven foundations of the two-tier monetary system with central banks at the core. These functionalities will come without sacrificing the safeguards on the integrity and governance of the monetary system,” Shin adds.

RELATED ARTICLE South Korean authorities explore ‘unified ledger’ for CBDC – a news story (18 October 2023) on a major new CBDC initiative described as ‘representing the initial step in the development of a future monetary system for Korea’ – the programme, which is receiving technical input from the BIS, is focused on developing underlying wholesale (interbank) CBDC infrastructure, specifically mining the ‘unified ledger’ concept

Korea opportunities

The involvement of the Bank of Korea is unsurprising given that in October 2023 financial authorities in South Korea announced details of a major new central bank digital currency (CBDC) initiative described as ‘representing the initial step in the development of a future monetary system for Korea’ – and specifically mining the ‘unified ledger’ concept. This project is receiving ongoing technical input from the BIS.

The Bank of Korea (BOK), Financial Services Commission and Financial Supervisory Service made a joint-announcement to kick off the ‘CBDC pilot project’ and a joint-report, ‘A step toward new financial market infrastructure: Bank of Korea’s initiative’, was published by the BOK and BIS.

This specified four overarching objectives, including – at a general population level – deflecting Koreans’ ‘considerable interest’ in crypto-currencies.

The fourth objective ‘lies in the realisation’ of the unified ledger concept.

‘Although issuing and circulating all tokenised assets on a single network operated by the Bank of Korea may be impractical, there is still a need to prevent the adverse effects of fragmentation that could occur if individual banks or operators of tokenised asset networks independently establish their own systems,’ it stated. ‘The CBDC network, which is designed to empower commercial banks to issue digital currencies and ensure secure, instant and simultaneous asset settlement on an external platform, could be viewed as a variation of the unified ledger concept.’


Aim to ‘perfect’ financial intermediation

In response to a Global Government Fintech question during a media briefing today (3 April), Skingsley said that BIS would issue a call for expressions of interest to private financial institutions in joining Project Agorá “in a couple of weeks”.

The IIF will act as intermediary for the private-sector participants.

It is envisaged that ‘several’ regulated financial institutions will participate representing each of the seven currencies involved. Being a member of the IIF, which has about 400 members from more than 60 countries, is not a requirement to participate.

At the same media briefing, Hyun said the project’s aim was significantly beyond creating a proof-of-concept. “The aim is much more ambitious,” he said, saying that those involved wanted to produce something “usable” and that “makes a real difference”.  

Hyun said it was “early days” in respect of technology choices pertaining to the project but that “the objective here is to perfect financial intermediation.”