Project Agorá’s big plans

Joy Macknight looks at the multibank initiative that aims to demonstrate the potential value of BIS’s ‘unified ledger’ model for making cross-border payments faster and cheaper

The number of central bank digital currency (CBDC) experiments has exploded in the past four years, with 134 countries and currency unions undertaking feasibility studies, according to the Atlantic Council CBDC tracker.

Through its Innovation Hub, the Bank for International Settlements (BIS) has been at the forefront, launching almost a dozen CBDC initiatives, including cross-border projects Dunbar, Jura and mBridge (from which it withdrew in October last year). Several of its experiments have focused on wholesale CBDCs, which are issued by central banks and used by them, as well as by commercial banks and other financial institutions, to settle transactions involving tokenised assets.

Its most recent collaboration effort in the wholesale CBDC space is Project Agorá, which launched in April 2024 with seven central banks but only began in earnest when the private sector participants were announced last September. After a rigorous vetting process, the BIS and the Institute of International Finance revealed the names of more than 40 banks, technology providers and market infrastructure players that will be involved in the initial design phase of the project.

According to the BIS, the project builds on its ‘unified ledger’ concept. First floated in 2023 in a speech on the future of the monetary system by BIS General Manager Agustín Carstens, the unified ledger is a digital infrastructure that brings together central bank money, tokenised deposits and digital assets on a single network.

To test this concept, Project Agorá aims to integrate various financial technologies on a common programming foundation, combining tokenised commercial bank and central bank money. Its goal is to enhance cross-border payments by making them faster and cheaper, while increasing transparency and accessibility.

“Project Agorá will assess whether a unified ledger can improve cross-border payments through better connections between currency areas and enhanced synergies between the two types of money,” says the Banque de France. “As a representative of the Eurosystem, the Banque de France seeks to ensure the euro is well represented among the six other currency areas committed to enhancing cross-border exchanges.”

The other currencies are the British pound, the Japanese yen, the Korean won, the Mexican peso, the Swiss franc and the US dollar.

The centrality of central banks

Central banks’ interest in CBDCs and exploring their potential role in enhancing cross-border payments has been driven in part by the emergence of private sector digital currency initiatives. In many ways, stablecoin providers such as Circle and other new players in cross-border payments such as Ripple, which provides a cryptoasset for use as a bridge currency, are delivering workable solutions for cross-border payments.

The risk is that developments in the private sector reach a point where central banks’ control and influence over monetary flows may be reduced

However, such solutions still have first and last mile problems when moving to and from fiat currencies, such as delays with local banks or liquidity constraints, according to Lewis McLellan, Editor of ‘Digital Monetary Institute’ at the Official Monetary and Financial Institutions Forum (OMFIF). He also points to the important role central bank money plays as the trusted medium of exchange.

“From the singleness of money perspective [where all forms of a currency have the same value and can be exchanged for each other at par], the reason we have faith in the enduring value of our money is its convertibility into central bank money. If cash use disappears and we have no digital representation of central bank money, then that anchor will be shakier,” McLellan says. “So, to preserve the status quo would require a digital form of central bank money, which is the European Central Bank’s (ECB) position.”

Keith Bear, a Fellow at the Cambridge Centre for Alternative Finance, adds: “The risk is that developments in the private sector reach a point where central banks’ control and influence over monetary flows may be reduced, which could impact on the use of central bank money as a settlement asset. If stablecoins or tokenised deposits begin to dominate, then financial and systemic risk may increase simply because central bank money is no longer underpinning the financial system for what could be quite significant settlement environments.”

As such, central banks also want to make a form of money available that is consistent with their objectives: maintaining price and financial stability. “While [central banks] may not compel CBDC usage, they are likely to make it sufficiently attractive [to encourage adoption],” Bear adds. “Obviously, they have the advantage of central bank money as the lowest risk asset for any settlement.”

Some of the world’s biggest trade banks are among the first Agorá cohort, including BNP Paribas, Crédit Agricole CIB, JPMorgan Chase Bank and MUFG Bank. While trade finance is not within the project’s scope, improving payment efficiency and connectivity could indirectly improve correspondent banking processes, “which are woeful and getting worse in terms of friction”, according to Bear.

Part of the project’s proposition is to eliminate the need for every participant in a correspondent banking network to do their own know-your-customer (KYC) and anti-money laundering (AML) checks, which will reduce the effort, complexity, cost and, possibly, risk associated with those processes.

“The hoped-for outcomes of this project are greater efficiency and immediacy by reducing the time it takes to make a payment through a correspondent banking network to seconds or minutes, not hours or days, which would help banks improve liquidity management,” Bear adds. In the long term, Banque de France believes that a unified ledger such as Project Agorá could enhance the efficiency and interoperability of trade banks by streamlining cross-border payments and reducing settlement times.

Getting those taking part to agree on a single rule book, participation requirements and infrastructure design will be a major challenge

Blockchain as the foundation

Dovetailing with the unified ledger concept is the BIS’s ‘finternet’ model – defined as multiple interconnected financial ecosystems.

“There is a need for the right infrastructure to provide, as Tony McLaughlin [Citi Treasury and Trade Solutions] would say, the financial substrate for the future financial environment, which will protect the singleness of money, increase efficiency and maintain the appropriate financial stability: all the things that central banks care about,” says Bear.

While the decisions about Project Agorá’s architecture have yet to be made, many believe it is likely that distributed or shared ledger technology, such as blockchain, will be used as the foundation. Blockchain’s advantages include having a tamper-proof ledger of transactions, programmability and 24/7 availability, although there have been question marks over the energy efficiency of some uses of blockchain and over processing speeds.

While not commenting specifically on Project Agorá, Julien Clausse, Head of AssetFoundry at BNP Paribas CIB, views the real value of a blockchain network in being a new business architecture. “Using a single ledger that all the players in the value chain could connect to and provide services on top of, without connecting to each other, is a paradigm shift in terms of the business architecture and value chain,” he explains.

McLellan also sees multiple benefits of using a single platform, including faster settlement processes. “But this would require harmonised KYC and AML checks, as well as agreed standards for sharing information, the lack of which is the main reason behind the delays in correspondent banking today,” he says.

Getting participants to agree on a single rule book, participation requirements and infrastructure design will prove to be a major challenge for the project.

“There are many governance questions separate from the technical infrastructure,” says McLellan. “Agorá will live or die on whether the technology is sufficiently promising that using it becomes an incentive for the participants to coalesce around a shared set of standards.”

The cutting edge

Many banks that are not part of the first cohort are questioning whether they should join Project Agorá now or wait until positive results begin to emerge, according to Bear. “Some are sceptical because of the difficulty in transforming cross-border payments and corresponding banking,” he says. “In that respect, scaling from a proof of concept with seven jurisdictions to something that is global and has the necessary buy-in from both central banks and commercial banks could be quite a long journey and require significant resources.”

Others are actively part of the vanguard, participating in several other digital currency programmes in addition to Project Agorá. For example, BNP Paribas CIB and Crédit Agricole CIB (CACIB) have been taking part in the ECB’s wCBDC programme, which is trying to demonstrate the feasibility of a platformless blockchain protocol.

“We’re working with different market players and regulators on several digital asset initiatives, knowing that ultimately the outcome will be a combination of everything we do,” says Etienne Bernard, Global Head of Cash Management at CACIB.

Joy Macknight is a freelance journalist/editor who has covered the global financial services industry for the past 20 years. Most recently, she was Editor of The Banker, a Financial Times publication