A major experiment by the Bank for International Settlements (BIS) has found that tokenization could help solve some of the biggest problems in cross-border payments, from slow settlement times to costly reconciliation between banks.
The Agorá Project, a joint effort of the BIS, seven central banks and more than 40 private financial institutions, concluded that central bank token reserves and commercial bank deposits could support atomic settlement between currencies and jurisdictions.
Atomic settlement refers to transactions carried out on an “all or nothing” basis, reducing the risk that one side of a cross-border payment fails while the other succeeds.
The initiative involved the Federal Reserve Bank of New York, the Bank of England, the Bank of Japan, the Swiss National Bank and other central banks alongside major commercial banks and financial companies.
Agorá Project participants now plan to go beyond simulations to test real-value transactions involving certain currencies and institutions. The Bank of Canada also joined the initiative this week.
The results came as global banks and asset managers ramp up their own tokenization efforts. DTCC, Wall Street’s clearinghouse, plans to roll out its tokenized settlement infrastructure for stocks, ETFs and U.S. Treasuries, while Nasdaq and the Intercontinental Exchange, which owns the NYSE, are both developing blockchain-based systems for tokenized stocks.
A cross-border transfer can bounce between several intermediary banks before reaching its destination at present, often taking days to settle and creating operational risks along the way. The use of tokenization and blockchain rails could mean fewer payment delays and failures in the global financial system, according to the report.
The BIS, often described as the “central bank of central banks,” has become increasingly active in blockchain research and tokenization, as governments and financial firms rethink how money and securities move globally.
The agency warned, however, that stablecoins – digital currencies linked to fiat money issued on blockchain by private companies – could pose risks to the financial system, calling for efforts to regulate the sector to be accelerated.
