Central banks could tokenize currency
This April 3, 2024, the Bank for International Settlements (BIS) announced the launch of the Agorá project, with the support of the Central Banks of France, Japan, South Korea, Mexico, Switzerland, England and the United States .
This initiative aims, initially, to explore how the tokenization of central bank currencies and commercial bank deposits could improve the monetary system .
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What is tokenization?
Tokenization refers to the process of converting assets, whether physical or financial, into digital versions on the blockchain. This process makes assets compatible with distributed networks like Ethereum, granting them typical properties of cryptocurrencies, such as improved traceability, faster transactions, and increased security thanks to blockchain technology.
According to the BIS, the Agorá project will examine how tokenization can improve traditional finance infrastructure, building on the concept of “unified ledger”, introduced in its June 2023 annual report.
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In this report, the BIS seems to show an interest in the added value brought by blockchains, but renames them “unified ledger” to dissociate them from cryptocurrencies , which it considers a “defective system”.
However, the BIS recognizes the importance of smart contracts, it states:
“Smart contracts can enable new ways of settlement and unlock types of transactions that are not viable or practical today, providing new opportunities to benefit businesses and people. »
The collaboration with 7 of the world’s largest central banks aims to improve inefficiencies in the current system , particularly for international transactions subject to legal and regulatory constraints, as well as the time zones of financial institutions.
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The BIS concludes by announcing its intention to issue a call for expressions of interest from private financial players in order to select a representative for each currency involved : the euro, the yen, the won, the peso, the franc, the pound and the dollar.
