The Great Payments Race: Will Competition or Collaboration be the Winner?

By Edvards Margevics, Co-Partner of CONCRYT

Today’s global financial landscape is being reshaped by a growing flow of cross-border payments, and the emergence of stablecoins, central bank digital currencies (CBDCs) and tokenized deposits are set to usher in a revolution that will reshape the landscape even further. The recent launch of Project Agorá from the Bank for International Settlements (BIS) represents a major leap in collaboration between central banks and the private sector. But it also demonstrates that the race is still on between traditional finance (TradFi) and decentralized finance (DeFi) to re-write the rules of the global cross-border payments game.

Project Agorá is being led by seven central banks, including the Bank of France, Bank of Japan, and Bank of England, and will explore tokenization of wholesale central bank money and commercial bank deposits on programmable platforms to improve the monetary system.  It’s a hugely positive development that this latest project marks a much deeper level of cooperation in public-private partnerships, recognising that working together rather than against each other is a surefire way to create the greatest benefits for all, and in a much quicker timeframe than if players were working in isolation.

How monetary system functionality can be improved with tokenization

If results are successful, Project Agorá promises momentous transformations to the way cross-border payments are currently conducted. Innovative technologies including DLT and tokenization promise to sweep away many of the pain points that make cross-border payments inefficient, like high fees and slow settlement. What this means for the incumbent cross-border payment network Swift is also momentous – it now also faces serious, credible challenges to its dominance for the first time in its history.

The seven central banks and their private sector partners are now seeking to integrate tokenized commercial bank deposits with wholesale central bank money in a programmable core financial platform.

What Project Agorá means for the financial industry

There is tangible excitement around Project Agorá and its potential to transform cross-border payments, and for many good reasons:

• Quicker atomic settlements: Instant, programmable transactions using smart contracts means settlement delays can be eliminated.
• Programmable money: Smart contracts can enable automated escrow releases or interest rate adjustments based on pre-defined conditions.
• Central bank stability: As the central bank is the issuer of the CBDC, businesses have the assurance that money will always be available.
• Seamless integration with unified ledgers: Breaking down silos between segregated ledgers means transactions can be enabled across different asset classes on a single platform.
• Enhanced security: Tokenized assets live on secure, tamper-proof ledgers, reducing the risk of fraud and unauthorized access. Blockchain-based transactions also offer full transparency and traceability.
• Assured regulatory compliance: Tokenization will enable compliance measures to be embedded within smart contracts.

In conclusion

As central banks navigate the complexities of CBDCs at their varying development stages, the fintech-driven private sector is striding ahead in its quest to reimagine traditional payment methods, and create new ones altogether. The success of stablecoins like USDT, and their growing institutional usage, is evidence of that. What we’re witnessing now is that the traditional payment rails for those assets are also now ripe for reinvention.

Project Agora isn’t just a fanciful experiment. It holds real potential to build a much more streamlined, lower cost, user-friendly financial future. In such a fast-moving environment, those players who can navigate technological advancements, changing regulatory frameworks, and meet customer demands will lead the way into future of finance. Ultimately, building the future payments world will not be a race between competitors; it will be built on teamwork between purpose-led visionaries who will collaborate for the benefit of everyone.