(Kitco News) – The Bank for International Settlements (BIS) is wading deeper into the blockchain waters as the central bank for central banks has announced the launch of Project Agorá, which will explore how tokenization can “enhance the functioning of the monetary system.”
“Tokenization combines the record-keeping function of a traditional database with the rules and logic that govern transfers,” said Hyun Song Shin, BIS Economic Adviser and Head of Research. “With Project Agorá, we aim to improve existing capabilities and enable new ones, all based on the proven foundations of the two-tier monetary system with central banks at the core. These functionalities will come without sacrificing the safeguards on the integrity and governance of the monetary system.”
Joining the BIS on Project Agorá are the Bank of France (representing the Eurosystem), 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 collectively work with a large group of private financial firms convened by the Institute of International Finance (IIF) to investigate how tokenized commercial bank deposits can be seamlessly integrated with tokenized wholesale central bank money in a “public-private programmable core financial platform.”
“This could enhance the functioning of the monetary system and provide new solutions using smart contracts and programmability, while maintaining its two-tier structure,” the BIS said. “Smart contracts can enable new ways of settlement and unlock types of transactions that are not viable or practical today, in turn offering new opportunities to benefit businesses and people.”
The main goal of the public-private partnership is to explore and “overcome several structural inefficiencies in how payments happen today, especially across borders, which add a layer of challenges: different legal, regulatory and technical requirements, operating hours and time zones,” the release said.
“Today, numerous payment systems, accounting ledgers and data registries require other complex systems to integrate them,” said Cecilia Skingsley, Head of the BIS Innovation Hub. “In Project Agorá, we want to explore a new common payment infrastructure that could bring all these elements together and might make the system work more efficiently together on a digital core financial infrastructure.”
“We will not just test the technology, we will test it within the specific operational, regulatory, and legal conditions of the participating currencies, together with financial companies operating in them,” she added.
The group will also work to overcome “the increased complexity of carrying out financial integrity controls (eg against money laundering and customer verification), which today are often repeated several times for the same transaction, depending on the number of intermediaries involved.”
“BIS Innovation Hub projects are generally experimental in nature and aim to explore and deliver public goods to the global central banking community,” the BIS said. Moving forward, they plan to “issue a call for expressions of interest to private financial institutions to join Project Agorá.”
The BIS said it hopes to get “several regulated financial institutions to participate representing each of the seven currencies,” and will provide specific instructions and requirements to interested parties “in due course.”
