BIS and Central Banks Collaborate on Asset Tokenization Initiative

The Bank for International Settlements (BIS) is spearheading a collaborative effort with central banks from several countries including France, Japan, South Korea, Mexico, Switzerland, the United Kingdom, and the United States Federal Reserve Banks. Together with private financial institutions, they aim to delve into the realm of asset tokenization within the monetary system.

This joint endeavor, aptly named "Project Agora," will leverage a unified ledger concept proposed by BIS, facilitating the integration of tokenized commercial bank deposits and tokenized wholesale central bank money. The overarching goal is to bolster the functionality of the monetary system, introducing innovative solutions through the utilization of smart contracts and programmability while upholding its established two-tier structure.

BIS highlighted the significance of this public-private partnership in addressing structural inefficiencies prevalent in current payment mechanisms, particularly across borders. Challenges such as varying legal, regulatory, and technical requirements, operational hours, and time zones often impede seamless transactions. Consequently, the initiative aims to streamline these processes, with detailed instructions and requirements forthcoming, along with a grace period for private banks to join the partnership.

Hyun Song Shin, BIS' economic adviser and head of research, emphasized the transformative potential of tokenization within a central bank framework, combining the reliability of traditional databases with the logic governing transfers.

Meanwhile, Cecilia Skingsley, head of BIS Innovation Hub, highlighted the significance of establishing a "common payment infrastructure" to enhance interoperability among payment systems, accounting ledgers, and data registries across digital currencies.

BIS has been closely monitoring recent advancements in cryptocurrency and their implications for financial systems. The BIS Innovation Hub recently launched six new projects focusing on cybersecurity, combating financial crime, central bank digital currencies (CBDCs), and green finance. Additionally, BIS is exploring Project Promise in collaboration with the Swiss National Bank and the World Bank, aiming to develop a proof-of-concept platform for tokenized promissory notes.