The Bank for International Settlements (BIS) and seven central banks announced on Wednesday a project called “Project Agorá,” which aims to explore how tokenization can enhance the functioning of the monetary system in collaboration with the private sector. The project brings together central banks from France, Japan, South Korea, Mexico, Switzerland, the United Kingdom, and the Federal Reserve Bank of New York, who will seek to collaborate with a group of private financial companies convened by the International Institute of Finance (IIF).
Based on the concept of a unified ledger proposed by the BIS, the project will study how tokenized commercial bank deposits and tokenized wholesale central bank currencies can be seamlessly integrated within a public-private programmable core financial platform. This could enhance the functioning of the monetary system and provide new solutions through smart contracts and programmability while maintaining its two-tier structure.
The press release states that this collaboration will seek to overcome some structural inefficiencies in today’s payment systems, particularly cross-border payments. These issues present a range of challenges, including different legal, regulatory, and technological requirements, operational hours and time zones, and increased complexity in conducting financial integrity controls such as anti-money laundering and customer verification. These control measures often need to be repeated multiple times for the same transaction, depending on the number of intermediaries involved.
Cecilia Skingsley, Head of the BIS Innovation Hub, stated:
“We are excited to collaborate with central banks and the private sector to explore the potential of tokenization in enhancing the functioning of the monetary system. This project has the potential to address some of the structural inefficiencies in today’s payment systems and pave the way for innovative solutions.”
Hyun Song Shin, Economic Adviser and Head of Research at the BIS, stated:
“We believe that tokenization can offer new opportunities for improving the efficiency and effectiveness of the monetary system. By integrating tokenized commercial bank deposits and wholesale central bank currencies in a programmable core financial platform, we can explore novel solutions while maintaining the dual-layered structure.”
Additionally, the BIS plans to issue letters of intent to private financial institutions to participate in Project Agorá.
