A large-scale experiment led by the Bank for International Settlements (BIS) found that tokenization could help solve some of the biggest pain points in cross-border payments, including slow settlement times and expensive coordination between banks.
Project Agora, a joint effort between the BIS, seven central banks, and more than 40 private financial institutions, has concluded that tokenized central bank reserves and commercial bank deposits can support atomic payments across currencies and jurisdictions.
Atomic payments refer to transactions being completed on an “all-or-nothing” basis, reducing the risk of one side of a cross-border payment failing and the other succeeding.
The effort included the Federal Reserve Bank of New York, the Bank of England, the Bank of Japan, the Swiss National Bank, and other central banks, as well as major commercial banks and financial companies.
Project Agora participants now plan to move beyond simulation and test real-value transactions involving some currencies and institutions. The Bank of Canada also joined the effort this week.
The findings come as global banks and asset managers ramp up their own tokenization efforts. Wall Street clearinghouse DTCC plans to roll out tokenized payments infrastructure for stocks, ETFs, and U.S. Treasuries, and Nasdaq and Intercontinental Exchange, which owns the New York Stock Exchange, are both developing blockchain-based systems for tokenized stocks.
Currently, cross-border money transfers can travel between multiple intermediary banks before reaching their destination, often taking days to clear and introducing operational risks along the way. The use of tokenization and blockchain rails could reduce payment delays and failures in the global financial system, the report showed.
BIS, often referred to as the “central bank of central banks,” has become increasingly active in researching blockchain and tokenization as governments and financial institutions rethink how money and securities move around the world.
But the agency warned that stablecoins – digital currencies tied to fiat currencies issued by private companies on blockchains – could pose risks to the financial system and called for accelerated efforts to regulate the sector.
