BIS project reveals that tokenization can enhance the speed and security of cross-border payments. Project Agorá, supported by prominent central banks, will progress to «real-value» testing for the settlement of tokenized central bank currencies and bank deposits on blockchain platforms.

What to know:

— Project Agorá, under the aegis of the Bank for International Settlements, determined that tokenizing central bank reserves alongside commercial bank deposits can greatly enhance the efficiency and dependability of international payments.

— With participation from key central banks such as the New York Fed, Bank of England, and Bank of Japan, the group is set to transition from simulations to testing actual transactions involving real value.

— The trend of tokenization is gaining momentum among Wall Street institutions, aiming to modernize financial operations by bringing assets like stocks, bonds, and funds onto blockchain systems.

A significant study led by the Bank for International Settlements (BIS) indicated that tokenization has the potential to alleviate some of the most pressing challenges in cross-border payments, addressing issues like prolonged settlement periods and expensive reconciliations between banks.

Project Agorá, a collaborative initiative involving the BIS, seven central banks, and over 40 private financial entities, concluded that tokenized central bank reserves and commercial bank deposits could facilitate atomic settlement across various currencies and jurisdictions.

Atomic settlement refers to the completion of transactions on an «all-or-nothing» basis, minimizing the risk that one part of a cross-border payment fails while the counterpart succeeds.

This initiative included the Federal Reserve Bank of New York, the Bank of England, the Bank of Japan, the Swiss National Bank, and other central banks, along with major commercial banks and financial firms.

Participants in Project Agorá are now gearing up to move past simulations to test real-value transactions that involve select currencies and institutions. The Bank of Canada also joined the project this week.

These findings emerged as global banks and asset managers intensify their tokenization initiatives. The Depository Trust & Clearing Corporation (DTCC), Wall Street’s clearinghouse, plans to launch its tokenized settlement infrastructure for stocks, ETFs, and U.S. Treasuries, while Nasdaq and NYSE-owner Intercontinental Exchange are both creating blockchain-based frameworks for tokenized stocks.

Currently, cross-border transfers may pass through multiple intermediary banks before reaching their final destination, often taking several days to settle and introducing operational risks along the way. The report suggests that utilizing tokenization and blockchain technology could lead to fewer delays and payment failures in the global financial landscape.

The BIS, often referred to as the «central bank for central banks,» has been increasingly engaged in blockchain and tokenization research as governments and financial institutions reconsider the movement of money and securities on a global scale.

However, the agency cautioned that stablecoins—digital currencies linked to fiat money issued on blockchain by private entities—might pose threats to the financial system, urging for accelerated regulatory measures in this sector.