Bank for International Settlement, Basel. Foto von Jim McDougall via Lizenz: Creative Commons

With the Agora project, the Bank for International Settlements (BIS) wants to work with several central banks to explore how tokenized bank deposits fit into the financial system of the future.

The Bank for International Settlements (BIS), the central bank of central banks, so to speak, wants to usher in the “tokenization” of money and other financial instruments on a “unified ledger” globally with “Project Agora”. At first glance, however, it is not very clear what and, above all, how the BIS plans to do this.

First, the BIS takes advantage of its central position in the global banking system. It brings together seven other central banks – from France, Japan, Korea, Mexico, Switzerland, England and the US Federal Reserve – as well as “a large group of private financial companies.” Interestingly, in this group the Bank of France represents the Eurosystem instead of the European Central Bank.

Project Agora aims to “explore how tokenized commercial bank deposits can be seamlessly integrated with tokenized wholesale central bank money on a public-private, programmable core platform.” Smart contracts can “enable new ways of settling payments and open up types of transactions that are not practical today.” The aim is to “overcome various structural inefficiencies that are common in payment transactions today, especially in cross-border transactions.”

Technically, the BIS relies on the “uniform account book”, a concept that the financial institution presented in relatively detail last autumn. The BIS recognizes that tokenization is a “key technology” – namely “representing claims digitally on a programmable platform.” It sees this as “the next logical step in digital accounting and the transfer of assets.” Tokenization could “massively upgrade the capabilities of the monetary and financial system” by “removing the traditional separation between message, negotiation and settlement” and enabling new “types of economic arrangements”.

While crypto and DeFi (decentralized finance) have “provided a glimpse of the promise of tokenization,” the BIS magnanimously declares, “crypto is a flawed system that cannot assume the role of future money.” Even stablecoins cannot , how “the implosion” and “collapse” of crypto shows, however the BIS comes up with it. In any case, the central banks and the money they issue are needed. Crypto has done a good job of exploring the technical potential, but can now go away.

To “unleash the potential of tokenization,” central bank digital currencies (CBDCs), tokenized deposits, and tokenized claims on other assets must merge into a new “financial market infrastructure.” This should be a “unified ledger” to prevent the financial system of the future from splitting into silos again. This does not mean that there is only one account book. Rather, different ledgers could coexist. But there should be a platform that connects them.

So in a sense, the BIS wants to copy Ethereum: One chain, and rollups and sidechains around it. But neither the press release nor the concept of the “unified ledger” reveal whether the BIS technically plans to form a blockchain or whether it wants to develop its own product – or has already developed it.

However, we find a useful clue that the Bank of France is involved instead of the ECB, and that they are trying to connect tokenized bank deposits with a “wholesale CBDC”. This word has been heard several times in recent months, most recently when the Swiss city of St. Gallen issued a 100 million franc tokenized bond offset by the “wholesale CBDC”.

This wholesale CBDC does not run on an open blockchain nor on a privatized, closed fork of it. Instead, it relies on Corda from R3, a plausibly constructed blockchain-like database that is technically tailored for finance but runs on private, locked nodes. The French National Bank has already gained experience with this by executing an “atomic swap” between the euro and the franc with the Swiss National Bank and the BIS.

This makes it increasingly clear what the established financial system’s response to crypto is. It’s not as bad as it could have been – but, realistically, not a serious competitor to what’s happening in the crypto ecosystem.


Leave a Reply