BIS and Banks Build Blockchain Cross-Border Payments Prototype

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(Bloomberg) — The Bank for International Settlements and a cohort of partners will soon start testing a new prototype for digital cross-border payments with real-value transactions. 

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Two years after first unveiling the so-called Project Agorá along with seven central banks and more than 40 regulated institutions, the group is ready to move to a trial stage involving actual transfers of money, the Basel-based institution said in a statement on Wednesday.

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“It will benefit the entire financial system,” said Tim Adams, head of the Institute of International Finance, which convened the private-sector participants.

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The announcement marks a new milestone for the project to modernize digital cross-border payments that could ultimately revolutionize the plumbing of the global financial system, making transactions cheaper and faster while preserving key compliance controls.

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The method would harness blockchain technology to settle transfers between banks in different countries within seconds. The Federal Reserve Bank of New York, the European Central Bank, Bank of Japan and Bank of England, as well as JPMorgan Chase, UBS Group AG, Deutsche Bank AG, several other major banks, Mastercard and Visa are all involved.

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Addressing reporters, Adams highlighted that no fixed timeline exists for the project, as “it’s key to get this right” instead of rushing outcomes.

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The system uses a “unified ledger” concept developed at the BIS, which envisions bringing together tokenized central bank reserves and commercial bank deposits on a shared platform. Transactions would be settled in an “atomic” way, which means that all necessary information is exchanged beforehand. Then, the balances at all involved banks update at the same time.

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“Once you know you have everything to run the transaction, you settle it in one go,” said Andrea Maechler, deputy general manager of the BIS.

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While the prototype embraces the distributed-ledger technology that also powers crypto and stablecoins, it preserves correspondent banking, which a project report released on Wednesday calls the “backbone of global payments.” 

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That means existing systems to enforce sanctions and screen for money laundering would be kept intact. The BIS left a project to modernize cross-border payments in 2024 after Russian President Vladimir Putin identified the underlying technology as a tool to circumvent sanctions and potentially undermine the dollar.

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The Agorá prototype “has demonstrated that tokenization can help to address inefficiencies in wholesale cross-border payments in a safe and secure manner,” the BIS said. 

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Participants including the central banks have shown strong interest to further explore the potential benefits of the prototype, the BIS said. The Bank of Canada has joined the project and more private-sector firms are also expected soon.

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