‘Faster and more efficient’ – Central banks support tokenization for wholesale payments

The Bank for International Settlements (BIS) is now fully backing tokenization for wholesale cross-border payments. 

In a statement on Wednesday, the institution, also commonly referred to as the central bank of other central banks, announced that its Project Agora demonstrated that tokenization improves cross-border payments. 

Part of the report read, 

Tokenisation can help to address inefficiencies in wholesale cross-border payments in a safe and secure manner through multi-currency settlement using tokenised central bank reserves and tokenised commercial bank deposits.

The so-called inefficiencies are the slow transfers that can take one to five days or more due to compliance checks across each jurisdiction and banks. 

Here, it’s worth noting that wholesale payments are high-value transfers that involve governments, financial institutions, and other big players.

Stablecoins solved the international payments pain points for retail, like settling in seconds. BIS-backed Project Agora sought to test a similar approach for wholesale payments. 

First introduced in 2024 by the BIS, Project Agora involved the U.S Federal Reserve, the Bank of England, the Bank of Japan, and other central banks, alongside over 40 private banks. Now, it will move to a 6-month operational trial using actual money.  

The private ledger will add features such as anti-money laundering screening and others over time. 

Is tokenization going mainstream?

If tested and finally adopted as the system of choice for central banks, this will be a major feat for tokenization and crypto. Tokenization allows for on-chain representation of traditional real-world assets (RWA) from bank deposits to stocks and ETFs. 

Stablecoins can be viewed as the first tokenized fiat currency, especially for the U.S dollar. They’ve gone mainstream into a +$320B market. From crypto experiment to global adoption. And the broader tokenization may follow the same trend. 

The Bank of Canada (BoC), which joined the BIS’s project, noted that the country could benefit immensely from tokenization, hailing Project Agora. Senior Deputy Governor Carolyn Rogers at BoC said, 

We know that the Canadian economy could benefit from innovation in cross-border payments. Tokenization has the potential to make these payments faster, cheaper, and more efficient and secure.

Right now, the overall global tokenized market currently stands at $34B – Less than 1% of traditional markets. However, Grayscale projects that the market could grow into a $300 trillion market. 

Final Summary

• BIS will move forward with Project Agora into the trial phase with real money, citing improved efficiency for wholesale cross-border payments. 
• Central banks are eyeing faster, cheaper, and more efficient transfers, just like stablecoins, once the project is finalized.