Four Japanese banks, including MUFG Bank, Sumitomo Mitsui Banking Corp., Mizuho Bank, and SBI Shinsei Bank, are participating in an international demonstration test for cross-border payments using digital currencies. The project, called Project Agora, aims to expedite international money transfers while cutting costs and enhancing transparency. The Bank for International Settlements (BIS) is leading the project which involves over 40 commercial financial institutions from around the world.
In April, the BIS announced the launch of Project Agora with seven central banks participating including the Bank of Japan and the Federal Reserve Bank of New York. Last week, private financial institutions were invited to join and begin the design phase of the project. Participants include major global banks such as JPMorgan Chase Bank, Citigroup Inc., Deutsche Bank, BNP Paribas SA, HSBC Holdings PLC as well as credit card companies Visa Inc. and Mastercard Inc.
The demonstration test will focus on smooth trading of digitalized central bank currencies and commercial bank deposits on a unified platform to improve efficiency in international bank transfers. A report on system design and challenges that need to be addressed will be completed by next year.
Currently, cross-border payments rely on systems provided by SWIFT (Society for Worldwide Interbank Financial Telecommunication) and correspondent banks acting as intermediaries. This process involves multiple intermediaries leading to duplicated operations like identity verification and anti-money laundering measures resulting in delays and high fees.
Digital currencies hold promise in addressing these issues but there are technical limitations as well as regulatory disparities across countries that need to be resolved before implementation can occur. The demonstration test aims to bring this project closer to practical implementation while acknowledging that a lengthy deliberation process may be necessary.
Project Agora seeks to revolutionize cross-border payments by leveraging digital currencies’ potential benefits while overcoming existing challenges through collaboration between central banks and private financial institutions worldwide.
