Leading central banks are increasingly testing a new digital system for cross-border payments. The Agora project is led by the Bank for International Settlements and involves the Federal Reserve Bank of New York, as well as leading central banks in Europe, Korea, Mexico and Japan, whose currencies make up the bulk of global payments.
The Bank of Canada plans to join the testing of the Agora system soon, but the Central Bank of China and commercial banks in the Middle Kingdom have no intention of participating. Globalization requires that the payment system should work not on the working days of financial institutions, but around the clock, 365 days a year.
Currently, cross-border transactions are carried out through a global network of commercial banks, but can be slow and costly if several banks are involved in the chain or if currencies from developing countries with smaller volumes are involved.
BIS deputy CEO Andrea Maechler said the group’s latest round of testing proved it was possible to use “tokenized central bank reserves” – essentially digital forms of national currencies – along with “tokenized commercial bank deposits.”
Payment system competition is on the rise
Global authorities have long sought to make international payments faster and cheaper, and this year a group of the world’s top 20 economies made this one of their key priorities.
Maechler said that while work on the Agora project was not yet “ready for mass production”, further work and testing was being planned.
“Obviously, if the world is moving to a tokenized ecosystem, one of the benefits is moving towards 24/7 operation,” she said, referring to a global payment system that operates “all the time.”
Tim Adams, head of the Institute of International Finance, which helps coordinate the work of dozens of participating commercial banks, said Agora’s latest trial was a milestone, demonstrating that tokenized payments can be used at scale.
Also tested was the so-called “atomic settlement system,” in which cross-border and currency transactions in the banking system can be completed on an all-or-nothing basis once key fields are checked.
Meanwhile, central banks have tested a so-called “tiered prototype architecture” that allows each of them to retain autonomy over their national currency registries and to keep certain key legal provisions in force.
While Agora is not a direct competitor, it is often compared to another digital payments project called mBridge, which is now being led by China, as well as countries such as Hong Kong, Thailand, the United Arab Emirates and Saudi Arabia.
India’s central bank has also invited BRICS member countries including Brazil, Russia, India, China, South Africa and China to draw up plans to unify their digital currencies at a BRICS summit it is due to hold in a few months.
Asked why China’s central bank or any of its commercial banks were not involved in the Agora project, Maechler said that “there was a different ‘group’ of participants.”
