Seven major Central Banks have successfully completed testing of a blockchain-based system in collaboration with 40 big financial firms, allowing the cheap and near-instantaneous settlement of cross-border payments.
The prototype, known as Project Agorá and spearheaded by the Bank for International Settlements and trade body the International Institute of Finance, is designed to allow commercial banks to transfer funds across borders by tokenising their deposits. It uses the same blockchain, or distributed ledger, technology that powers cryptocurrencies such as bitcoin.
The project provides a boost to central banks and traditional financial companies that are seeking to fend off competition in the lucrative cross-border payments market from US dollar-backed stablecoins, a market dominated by crypto companies Tether and Circle.
Brewing Conflict
This breakthrough potentially opens a rift between the participants in Project Agorá — led by US, EU, British, Japanese, Korean, Canadian, Swiss and Mexican institutions — and the backers of Project mBridge, a rival cross-border payment system led by the Chinese central bank that the BIS quit in 2024.
Most cross-border payments are done through the slow, costly and opaque correspondent banking system, which involves money being passed between a chain of lenders and which has long been seen as ripe for innovation.
“This prototype and its successful testing lay the groundwork for next-generation solutions,” the BIS and IIF said in a report on Wednesday. The project “preserves correspondent banking as the backbone of global payments while applying new technology to enhance its performance”, they said.
It also “demonstrates that a shared distributed ledger technology platform can support safe settlement in a tokenised environment and address longstanding challenges in wholesale cross-border payments”, the report said.
The tests have so far been “synthetic”, meaning they have been done without using real money in the cross-border transfers. But the participants, including JPMorgan Chase, HSBC, BNP Paribas, Visa, UBS and MUFG Bank, plan to move to real cash transfers soon, although the report did not specify when this would happen.
“The key is to get this right rather than some particular timeline,” said Tim Adams, head of the IIF. “We want to make sure that we are all comfortable as it proceeds. But I’m confident it will proceed at some clip.”
The project involved tokenised bank deposits being transferred between currencies on a distributed ledger and settling these transactions almost instantly through “atomic settlement” using tokenised central bank reserves.
The transactions were achieved while maintaining privacy and anti-money laundering checks, the report said, adding that they did not require changes to the existing legal framework.
The Bank of Canada is joining for the next phase of testing with the other seven central banks: the Federal Reserve Bank of New York, the Bank of Japan, the Bank of France, the Bank of England, the Bank of Korea, the Bank of Mexico and the Swiss National Bank.
