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Insi g hts and Exper t ise
Insights and Expertise
The great payments payment network Swift is not just under scrutiny, but

now also faces credible challenges to its dominance in this
race – will competition evolving landscape. It's widely recognized that although
the current monetary system has functioned adequately,
it also contains many design flaws causing frictions that
or collaboration win? slow efficiencies and force higher costs on businesses,
such as the reliance on commercial correspondent banks,

By Edvards Margevics compliance expenses, regulatory differences and varying
operating hours in different time zones that can delay
Concryt settlements.
ross-border payments have become the lynch- These frictions are due to design flaws where
pin of trade in today's financial world. And digital money and transaction elements reside in
now an ongoing digital revolution promises siloed, proprietary databases located at the edges of
C to reshape the landscape further, with sta- communication networks. These databases also must be
blecoins, central bank digital currencies (CBDCs), and connected through third-party messaging systems that
tokenized deposits at the forefront. The April 3, 2024, send messages back and forth. Thus, transactions must
launch of Project Agorá from the Bank for International be reconciled separately before eventually being settled
Settlements (BIS – www.bis.org/about/bisih/topics/fmis/ with finality. During this fraught back-and-forth process,
agora.htm) marks a significant step forward in cross-bor- bank and business participants can’t get a complete view
der payments collaboration between central banks and over their transactions, and uncertainties and misaligned
the private sector, but it also shows that the race between incentives preclude some transactions that have clear
traditional finance (tradfi) and decentralized finance economic rationale. While workarounds such as collateral
(defi) is still to be won. or escrow can mitigate such frictions, these solutions have
limits and create their own inefficiencies. Tokenization
Project Agorá, led by seven central banks, including the is a more fundamental route toward addressing the
Bank of France, Bank of Japan and Bank of England, shortcomings of the current system.
will explore how tokenization of wholesale central bank
money and commercial bank deposits on programmable Working with private financial firms, the seven central
platforms can improve the monetary system and reshape banks seek to integrate tokenized commercial bank
global transactions. deposits with wholesale central bank money in a
programmable core financial platform. By leveraging
This project's launch follows the successful conclusion of blockchain-based smart contracts and programmability,
BIS’ Project Mariana (www.bis.org/about/bisih/topics/cbdc/ Agorá holds the potential to revolutionize the monetary
mariana.htm) in late 2023, which explored the cross-border system while maintaining its essential two-tier structure.
settlement capabilities of wholesale CBDCs. Project Agorá
also builds on BIS’ “unified ledger” model, disclosed The broader implications of Project Agorá for the financial
in 2023, which proposes a structure where tokenized industry
deposits, central bank money and other tokenized assets
are available in one decentralized ledger. This would Here’s why Project Agorá is exciting and what it could
produce functionality as yet unavailable today due to the mean for cross-border payments:
current structure of the monetary system and its controls. • Faster, atomic settlements: With instant, program-
mable transactions using smart contracts, settle-
Project Agorá (Greek for ‘marketplace’) reaffirms the shift ment delays can be eliminated, and money can get
taking place in the broader financial and payment spaces, where it needs to be much faster and more securely,
where established incumbents and nimble challengers aiding business cash flows and instilling confi-
have battled for market share, and competition is gradually dence in trading.
giving way to collaboration. What’s remarkable about this
latest initiative is the giant leap forward in public-private • Programmable money: Smart contracts enable new
partnerships. This unprecedented level of cooperation ways of settlement, such as automated escrow re-
recognizes that working together is the fastest way to leases or interest rate adjustments based on pre-
produce the greatest benefits for all. defined conditions. This is a major leap forward in
business efficiencies and ensures finances can be
How tokenization can enhance the monetary system's more accurately tracked and calculated, enabling
functionality better forecasting and business agility.
• CBDCs for stability: Central bank digital curren-
This project promises significant transformations, with cies provide a trusted foundation for tokenized
innovative technologies like DLT and tokenization transactions. Because the central bank is the issuer
sweeping away many pain points, like high fees and of the CBDC, businesses can depend on built-in
slow settlement, that have typically afflicted cross- safeguards and the assurance that money will al-
border payments. It’s clear the incumbent cross-border ways be available. Plus, there’s no need to worry
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