Korea to take part in global cross-border payments tokenization initiative

Bank of Korea Governor Rhee Chang-yong / Yonhap

Central banks and commercial lenders in seven economies and the Bank for International Settlements (BIS) will explore tokenization of cross-border payments through Project Agorá, a public-private partnership, the Bank of Korea said Wednesday.

Korea making the list of global financial standard-setting bodies is an indication of and recognition for the IT powerhouse’s achievements in central bank digital currency (CBDC) research on tokenized deposits. The feat is expected to translate into further opportunities for Korea’s private financial and business entities in the broader field of digital finance, including trade financing.

The BIS project encompassing five reserve currency economies will explore how tokenization of wholesale central bank funds and commercial bank deposits on programmable platforms can improve the speed and integrity of international payments at lower costs.

Included are the BOK, Bank of France, Bank of Japan, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York. They will work in partnership with a large group of private financial firms convened by the Institute of International Finance (IIF).

The project builds on the BIS-proposed concept of a unified ledger, a new type of financial market infrastructure whereby the full benefits of tokenization can be realized through the combination of central bank funds, tokenized deposits and assets on a programmable platform.

The partnership will seek to overcome cross-border structural inefficiencies, including differences in legal, regulatory and technical requirements, varying operating hours and time zones.

Also bolstered will be speedy detection of money laundering attempts and customer verification, processes that remain time-consuming and costly due to heavy involvement of numerous intermediaries.

The participants aim to establish a prototype system, a final stage before transactions are actually enabled.

BIS Economic Adviser and Head of Research Shin Hyun-song said tokenization combines the record-keeping function of a traditional database with the rules and logic that govern transfers.

“With Project Agorá, we aim to improve existing capabilities and enable new ones, all based on the proven foundations of the two-tier monetary system with central banks at the core,” he said.

“These functionalities will come without sacrificing the safeguards on the integrity and governance of the monetary system.”