The project seeks to build a “usable” solution to integrate tokenized commercial bank deposits with central bank money using smart contracts and programmability, officials at the Bank for International Settlements said.
A global group of central banks is exploring how tokenization can be used to improve existing financial systems with a new project, the Bank for International Settlements (BIS) announced Wednesday.
The BIS represents 63 of the world’s central banks and is running an array of projects on the issuance of national digital currencies and the improvement of market efficiency with technologies that power crypto networks.
Financial service providers around the world have started seriously considering tokenization, which facilitates the digitization of real-world assets. A recent report backed by the U.K. government urged local firms to execute their tokenization strategies. Financial powerhouse HSBC said last month that it was tokenizing gold for investors in Hong Kong.
Meanwhile, the market value of U.S. Treasury notes that were tokenized on public blockchains crossed above $1 billion dollars for the first time in March, according to data from 21.co.
The new Project Agorá – Greek for marketplace – will bring together seven monetary authorities from the U.K., Japan, South Korea, Mexico, Switzerland, New York and Europe, as well as private financial firms to run investigations, according to the announcement.
It “will investigate how tokenized commercial bank deposits can be seamlessly integrated with tokenized wholesale central bank money in a public-private programmable core financial platform,” the BIS said in its announcement. “This could enhance the functioning of the monetary system and provide new solutions using smart contracts and programmability while maintaining its two-tier structure.”
Smart contracts are used in the crypto world to automatically execute transactions.
Project Agorá will explore a more efficient payment infrastructure that could bring together numerous payment systems, Head of the BIS Innovation Hub Cecilia Skingsley said in a press statement.
“We will not just test the technology, we will test it within the specific operational, regulatory and legal conditions of the participating currencies, together with financial companies operating in them,” Skingsley added.
The goal of Project Agora is an ambitious one, said Hyun Song Shin, BIS head of research, during a press briefing on Wednesday.
“We’re aiming for something, which eventually will be very much usable and something which will make a real difference. And the reason why we’re optimistic that this is actually something that will be usable is that we’re building on exactly the current infrastructure,” Shin said.
The BIS intends to issue a call to gather expressions of interest from private financial institutions to join Project Agorá.