Tokenisation Works for Cross-Border Payments: BIS

The Bank for International Settlements (BIS) is sold on the benefits of tokenisation, according to a new report published by the body that says distributed ledger technology (DLT) can improve wholesale cross-border payments by addressing long-standing inefficiencies at scale.

The paper describes the results of Project Agora, a public-private collaboration convened by the BIS and the Institute of International Finance (IIF), that explored multi-currency settlement using tokenised central bank reserves and tokenised commercial bank deposits.

The results are strongly positive, according to the BIS, that says its proposed platform achieves increased transaction speed, enhanced transparency, reduced market impact, fewer errors and more effective controls and monitoring around AML and other checks.

“The prototype illustrates how shared infrastructure, interoperable tokens, programmable workflows, atomic settlement and privacy-preserving execution can address many of the well-known pain points in cross-border payments,” the paper states.

In the proposed structure, the need for sequential processing is reduced by combining a path discovery mechanism with the ability to perform sanctions screening, AML/CFT checks and fraud detection, in parallel. Since the platform uses atomic settlement, counterparties can align payment‑related information before committing liquidity, potentially lowering the incidence of failed payments and reducing the costly need to unwind transactions.

Transactions can also occur faster as settlement occurs in seconds once funds or liquidity are locked. Around the clock operations mean that delays caused by misaligned operating hours across jurisdictions can be mitigated.

Since all parties to a transaction have access to real-time payment status, while maintaining privacy from non-participating entities, privacy can be maintained and the BIS notes this visibility could, in the future, be extended to end users, including debtors and creditors.

The BIS also notes that the modular design can unlock new capabilities, including conditional and always-on payments, while enabling future enhancements in areas such as anti-money laundering, countering the financing of terrorism, sanctions compliance and fraud detection, as regulatory and data-sharing frameworks evolve.

Participants included the Bank of England, the Federal Reserve Bank of New York, the Bank of France (representing the Eurosystem), the Bank of Japan, the Bank of Korea, the Bank of Mexico, the Swiss National Bank and more than 40 private sector financial institutions.

The results of the exploratory work mean the next stage is real-value testing with transactions involving certain currencies and participants. The Bank of Canada will also participate in the project.

“The project has shown the possibility of completing atomic settlement of wholesale cross-border transactions using tokenised central bank reserves and tokenised commercial bank deposits. The findings indicate this is achievable securely and with finality across currencies and jurisdictions,” the paper states.