Just when you’re busy planning your summer getaway, along comes a payments race you really should have seen coming.
Last week the Bank for International Settlements dropped a bombshell of an announcement where it launched Project Agorá, along with seven central banks, which will focus on the tokenisation of wholesale central bank money and commercial bank deposits on programmable platforms.
We here at The Banker cover digital and tokenised assets a lot. I firmly agree with Keith Bear from the Cambridge Centre for Alternative Finance that a global “digital money race” is starting, where we have “stablecoins, central bank digital currencies and tokenised deposits … running in parallel”.
I would take Bear’s point further and say, when it comes to the future of payments, there is another race brewing over who is best placed to take advantage of emerging technologies like distributed ledger and tokenisation. The race is between the central banks and what Cecilia Skingsley, head of the BIS Innovation Hub, described as “private sector expertise” — meaning commercial banks and fintech companies — and the dominance of Swift as the guardian of global financial messaging.
In my view, Project Agorá is a bit of a swipe against the supremacy of Swift when dealing with cross-border payments.
I wanted to poll the industry on my view. The Banker sent out a wee LinkedIn poll last week specially asking where the industry felt the payments race was heading.
Of 52 votes in response to the question “We are in the midst of a new, global, cross-border payments race. Who will win in the end?”, 33 per cent said that it would be global central banks with CBDCs, 13 per cent that it would be commercial banks with stablecoins, 40 per cent thought that whatever happens, Swift will be involved, while 13 per cent predicted that whatever happens, Swift will be out of the picture.
The results make sense: Swift is a more than 50-year-old global banking membership organisation whose stability and longevity shouldn’t be dismissed.
However, speaking during the Project Agorá launch, Hyun Song Shin, BIS economic adviser and head of research, said currently “firms engaged in international trade and investment rely on regulated financial institutions to perform the bookkeeping operations all along the chain of payments”.
It is those “bookkeeping operations” or Swift messages that Project Agorá aims to replace by bringing tokenised deposits and tokenised central bank money together on the same programmable platform.
The various global intermediaries involved in international payments, as well as the different time zones, operating hours, legal/regulatory and operational standards, mean that the traditional separation between messaging and settlement can introduce delays and uncertainties. Project Agorá aims to combine tokenised messaging and settlement on a unified ledger, enabling the payment and settlement to happen in one go as a single operation.
However, this current payments race doesn’t have clear teams, with commercial banks involved with Swift’s experiments, central bank projects as well as their own stablecoin endeavours. This talk of alternative payments leaves out the very real activities around Swift’s roll-out of ISO 20022 as the new messaging standard for cross-border payments, as well.
Hedging bets, rather than backing a proposed winner, seems to be the mindset of most of the industry when looking at the future of wholesale international payments and cross-border activity.
This week, Amalia Illgner and I sat down with the CCAF’s Bear for The Banker exchange podcast to talk through the realities of this payments race.
Liz is deputy editor of The Banker. You can connect with Liz on LinkedIn, or follow her on Bluesky.
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