A major experiment led by the Bank for International Settlements (BIS) found that tokenization could help solve some of the biggest problems in cross-border payments, from slow settlement times to costly reconciliations between banks.
Project Agorá, a joint effort between the BIS, seven central banks and more than 40 private financial institutions, concluded that central banks’ tokenized reserves and commercial banks’ deposits could support atomic settlement across currencies and jurisdictions.
Atomic settlement refers to transactions that are completed on an “all or nothing” basis, reducing the risk that one side of a cross-border payment will fail while the other succeeds.
The Federal Reserve Bank of New York, the Bank of England, the Bank of Japan, the Swiss National Bank and other central banks participated in the initiative, along with large commercial banks and financial companies.
Project Agora participants now plan to go beyond simulations and test real-value transactions involving some currencies and institutions. The Bank of Canada also joined the initiative this week.
The findings came as global banks and asset managers stepped up their own tokenization efforts. DTCC, Wall Street’s clearinghouse, plans to roll out its tokenized settlement infrastructure for stocks, ETFs and US Treasuries, while Nasdaq and Intercontinental Exchange, owner of the New York Stock Exchange, are developing blockchain-based systems for tokenized stocks.
A cross-border transfer can bounce between several intermediary banks before reaching its destination today, often taking days to clear and creating operational risks along the way. The report showed that the use of tokenization and blockchain rails could mean fewer delays and failed payments in the global financial system.
The BIS, often described as the “central bank for central banks,” has become increasingly active in blockchain and tokenization research as governments and financial companies rethink how money and values move globally.
However, the agency warned that stablecoins (digital currencies linked to fiat money issued on blockchain by private companies) could pose risks to the financial system, and urged to accelerate efforts to regulate the sector.
