Home Payments Call opens for private participants in cross-border payments tokenisation project

Call opens for private participants in cross-border payments tokenisation project

Washington DC: global finance industry association IIF, which is headquartered in the US capital, is working with Switzerland-headquartered BIS on ‘Project Agorá’ (whose details were first announced six weeks ago) | DC picture credit: Pixabay

The call for private-sector participation in ‘Project Agorá’ – the major cross-border tokenisation initiative announced six weeks ago by the Bank for International Settlements (BIS) – has opened this week, with the documentation revealing fresh details about the project.

Project Agorá (Greek for ‘marketplace’) will see Switzerland-headquartered BIS and seven of the world’s most technologically engaged central banks teaming up with the private sector to explore how tokenisation – seen by the BIS as having the potential ‘to be the next frontier in a long trend of digitalisation of money’ – can improve the functioning of wholesale cross-border payments.

It was announced in early-April that the 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 would be partnering a ‘large group’ of financial companies convened by the Institute of International Finance (IIF), the Washington DC-headquartered global finance industry association, on the project.

The BIS has this week (14 May) published a ‘Project Agorá’ application package, which interested private-sector financial institutions have until 31 May 2024 to complete. Selected participants are expected to be published by ‘early August’.

The companies are expected to contribute technical expertise to the design of a programmable core financial platform and work with the participating central banks to test use-cases. A newly formed ‘Agorá Private Sector Group’ will fund the project – which is expected to run ‘through 2025’ – via ‘participation fees’.

RELATED ARTICLE BIS reveals details of public-private cross-border payments tokenisation ambition – our news story (3 April 2024) on the launch of ‘Project Agorá’

‘Major public-private partnership’

BIS described Project Agorá six weeks ago as a ‘major public-private partnership’ that ‘will seek to overcome several structural inefficiencies in how payments happen today, especially across borders’.

It described 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 stated, ‘are often repeated several times for the same transaction, depending on the number of intermediaries involved.’

Those involved in the project will look to 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 the newly created 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 stated 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.’

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

‘Whole new range of possibilities’

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,’ BIS economic adviser and head of research Hyun Song Shin said 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 stated in last month’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,’ he added.

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’

Three main selection criteria

The newly published 14-page application pack states that private-sector participants need to be regulated financial institutions including (but not limited to) commercial banks, financial market infrastructures (FMIs) and ‘critical payment services providers of significance to the cross-border payments ecosystem’.

A ‘Project Agorá Committee’,co-chaired by the BIS and the IIF, will include a senior representative from each public and private sector member ‘with the necessary expertise and ability to authorise appropriate resources from within their respective institutions’.

The IIF will select the private-sector participants, ‘in mutual agreement’ with the BIS, based on three main factors: the applicant’s ‘importance and involvement’ in terms of cross-border payments (both from the perspective of its domestic jurisdiction and globally); the applicant’s ‘expertise with innovation projects in general and familiarity with experimentations focused on tokenisation and distributed-ledger technologies [DLT] in particular’; and ‘the expertise and experience of the people the applicant proposes as its representatives to the Project Agorá Committee and workstreams on business requirements, technology, legal and communications.’

The BIS and IIF will also, ‘to the degree possible, seek to ensure diversity of the private sector participants in terms of business models, institution size, relevant expertise, and geography.’ Being a member of the IIF, which has about 400 members from more than 60 countries, is not a requirement to participate. The pack states that ‘there will be no differential treatment for IIF members who apply’.  

A sample question for applicants is to explain their institution’s motivation to participate and ‘what specific contributions you will aim to bring to the project’ in a maximum of 300 words.