The central bank also provided perspective on its goals. “The project will focus on overcoming common structural inefficiencies in cross-border payments today related to differing legal, regulatory, and technical requirements, operating hours and time zones, and varying financial integrity controls,” the Fed said in its release.

BIS said it would issue a call to private financial institutions, seeking expressions of interest for participation in the project. The Institute of International Finance will work to convene any interested participants. It expects to have financial institutions to represent each of the seven currencies, the BIS said. 

“Today, numerous payment systems, accounting ledgers and data registries require other complex systems to integrate them,” Cecilia Skingsley, BIS’s innovation hub head, said in a separate BIS press release on the same day. “In Project Agorá, we want to explore a new common payment infrastructure that could bring all these elements together.”

Federal Reserve Governor Michelle Bowman discussed improving cross-border payments in a February speech in South Africa. Bowman said that advances will require international collaboration and additional research.

“Faster, cheaper, more transparent and more inclusive cross-border payment services offer widespread benefits for citizens and economies around the world, with the potential to support economic growth, international trade, global development, and financial inclusion,” Bowman said, according to the text of her remarks. 

The Fed’s limited role in Project Agorá falls in line with Bowman’s speech, in which she warned against relying too much on technology to solve issues with the cross-border payments system. “Our progress will likely be incremental and slow, requiring a longer-term view,” Bowman said. “The safety of our financial system requires that we get this right, and our pursuit of improvements in the payments system must avoid the temptation to rely on new technology alone.”

But the Federal Deposit Insurance Corporation’s Vice Chair Travis Hill had a different warning in a speech last month. The U.S. risks being left behind as other countries pursue regulations for tokenization, and could miss out on significant improvements for cross-border payments, Hill said.

“Our payment and settlement systems remain slow and inefficient for many users, with delayed settlements for large classes of transactions (such as cross-border transactions and bond issuances),” Hill said. “Tokenization and distributed ledgers have the potential to overcome many of these obstacles by operating 24/7/365 and introducing settlement finality in real time.”

By James Pothen on April 4, 2024
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