Tokenization has become a significant topic of interest, with many entities looking to participate in this area. The Bank for International Settlements (BIS) and seven central banks have announced plans to work with private sector entities to investigate the capabilities of tokenization in enhancing the monetary system.
Known as Project Agorá, this venture brings together the Bank of France, Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England, and the Federal Reserve Bank of New York. They will collaborate with various private financial firms under the coordination of the Institute of International Finance (IIF).
Expanding upon the concept of the unified ledger developed by the BIS, the project will focus on the seamless integration of tokenized commercial bank deposits and wholesale central bank money within a public-private programmable core financial platform. The goal is to improve monetary system operations and introduce innovative solutions using smart contracts and programmability while maintaining the existing two-tier structure. Smart contracts have the potential to transform settlement processes and facilitate transactions that are currently challenging, providing new opportunities for businesses and individuals.
This broad public-private partnership aims to address structural inefficiencies present in current payment systems, especially those involving cross-border transactions. Issues such as different legal frameworks, regulatory requirements, operational schedules, and time differences create complexities during transaction execution. Furthermore, the complex financial integrity controls, including anti-money laundering measures and customer verification procedures, often require repeated verifications throughout the transaction process, depending on the involvement of intermediaries.
Projects initiated by the BIS Innovation Hub are experimental in nature, focusing on exploring and providing benefits to the global central banking community.
In the next phases, the BIS will invite private financial institutions to express their interest in participating in Project Agorá, with the IIF acting as the intermediary and facilitator for private sector engagement. It is expected that multiple regulated financial institutions will join, each representing one of the seven currencies. Detailed guidelines and requirements for participation will be communicated later, and membership in the IIF is not mandatory for involvement.
