[NEWS] Central banks of Japan, the US and Europe to experiment with CBDC for international payments in BIS project "Agora"

On the 4th, the Bank of Japan announced that it will participate in Agorá, a new experimental project planned and operated by the Bank for International Settlements (BIS).

This project will use smart contracts and programmability to conduct a demonstration experiment on international payments between tokenized commercial bank deposits and CBDC (central bank digital currency). The project will also explore the possibility of a new payment infrastructure.

Agorá means "market" in Greek. The seven central banks participating in the project are the Bank of Japan, the Bank of Korea, the Bank of Mexico, the Swiss National Bank, the Bank of England, the Federal Reserve Bank of New York, and the Bank of France. The project will involve commercial banks in each region and will carry out the study.

Agorá will call on private financial institutions to participate in the project. The IIF (Institute of International Finance) will coordinate the private financial institutions.

It has been pointed out that the current cross-border payment system has issues with cost, speed, transparency, and access. Agorá aims to overcome the issues in cross-border payments while maintaining financial integrity.

BIS explains the significance of tokenization as "integrating records with rules and logic that manage records through smart contracts." By utilizing smart contracts, it is expected that resources that have been spent so far will be significantly reduced.

BIS emphasizes the possibility of reducing compliance costs on shared infrastructure. It says that know-your-customer (KYC) and anti-money laundering (AML) monitoring may be streamlined. The establishment of such monitoring systems is currently a heavy burden for banks.

BIS takes a position that focuses on functionality rather than technology. Hyun Song Shin, head of research at BIS, mentioned that "blockchain projects, especially those on public blockchains, face challenges in scalability and interoperability." He added, "Agora aims to improve existing functions and realize new functions based on the proven foundation of a two-tier currency system with a central bank at the core."

The polarizing situation surrounding CBDC

There are other cross-border central bank digital currency (CBDC) initiatives. One initiative that is approaching practical use is "mBridge," which is being implemented in cooperation with the central banks of China, Thailand, Hong Kong, and the UAE.

Another international initiative in which China and the UAE are participating is the blockchain-based payment system in the "BRICs." BRICs is a collective term for five countries: Brazil, Russia, India, China, and South Africa, and this year, the UAE and Saudi Arabia have joined. The countries that participate are mainly those that are aiming to break away from dollar dominance.

The Agora announced this time has further polarized the countries that are aiming to break away from dollar dominance.

Reference: BOJ announcement
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