A major research initiative led by the Bank for International Settlements (BIS) has unveiled a set of promising new technologies aimed at solving longstanding challenges in traditional cross-border payments. The project, known as “Project Agorá,” brought together seven central banks and over forty private financial institutions to explore innovative solutions in this area.
A new era for tokenized currencies
The research found that tokenizing both central bank reserves and commercial bank deposits could enable atomic swaps between different national currencies. An atomic swap allows payments to be executed only when both parties approve simultaneously and unconditionally, thereby eliminating the risk that one party completes a transaction while the other fails to do so.
Among the participants in the project are the Federal Reserve Bank of New York, the central banks of the UK, Japan, and Switzerland, as well as several major commercial banks and financial firms. The Bank of Canada also joined the initiative earlier this week.
Mini glossary: Atomic settlement refers to a process where a transaction involving multiple parties either goes through in full or not at all, preventing any party from being exposed to risk during the exchange.
Pilot projects moving forward
The participating organizations announced that they are moving beyond simulations and will begin real-world trials involving tokenization with selected currencies and financial institutions. The project aims to address common issues in conventional cross-border payments, such as delays, high costs, and repetitive transactions.
BIS and its partners reported that tokenization could substantially reduce operational risk in cross-border payments through atomic settlement.
Traditional cross-border transfers often pass through numerous intermediary banks before reaching the recipient, with the process sometimes taking several days. In contrast, a model using tokenized currency could deliver faster and more secure transfers.
Industry leaders ramp up investment
Key industry players are also accelerating their efforts in tokenization. The US-based clearing giant DTCC is working to establish settlement infrastructure for tokenized equities, exchange-traded funds (ETFs), and US Treasury bonds. Meanwhile, Nasdaq and Intercontinental Exchange, which owns the New York Stock Exchange, are continuing to develop blockchain-based tokenization systems.
| Institution | Role in Project | Area of Tokenization |
|---|---|---|
| DTCC | Settlement infrastructure provider | Stocks, ETFs, bonds |
| Nasdaq | Market infrastructure developer | Tokenized equities |
| Intercontinental Exchange | Exchange owner and software developer | Tokenized securities |
BIS sounds the alarm on stablecoins
Known as the “central bank of central banks,” BIS has assumed an increasingly active role in blockchain and tokenization in recent years. However, its latest report also highlighted concerns about stablecoins, the blockchain-based digital assets pegged to conventional currencies and issued by private companies. BIS warned that such instruments could pose risks to the broader financial system and urged for faster regulatory action in this area.
BIS emphasized the expanding size of the stablecoin market could bring risks for traditional finance, advising that regulations need to be updated to keep pace with emerging threats.
