South Korea will participate in a global project involving central banks and commercial lenders from seven countries that seek to explore the tokenization of cross-border payments. Along with the Bank for International Settlements (BIS), this initiative marks a significant milestone for Korea, highlighting the country’s efforts in the development of a central bank digital currency.
Exploring Cross-Border Payments
According to a report by The Korea Times, the inclusion of Korea in this global financial endeavor dubbed Project Agorá could open up new opportunities for private financial and business entities in the digital finance space, particularly in trade financing. The project aims to leverage tokenization to enhance the speed and integrity of international payments while reducing costs.
By exploring the tokenization of wholesale central bank funds and commercial bank deposits on programmable platforms, participants could streamline cross-border transactions. This involves establishing a prototype system to address structural inefficiencies such as differences in legal, regulatory, and technical requirements, as well as varying operating hours and time zones.
Additionally, Project Agorá aims to bolster the detection of money laundering attempts and customer verification processes, which are currently affected by delays and high costs due to the involvement of multiple intermediaries. Through tokenization, the project endeavors to combine the record-keeping function of traditional databases with the regulations governing transfers.
Tokenization and Transaction Efficiency
The BIS’ Economic Adviser and Head of Research, Shin Hyun-song, highlighted that Project Agorá enhances international payments by addressing the efficiencies in cross-border transactions while upholding the integrity and governance of the monetary system. Project Agorá brings together 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.
Meanwhile, South Korea recently updated its foreign exchange regulations to simplify trading processes for offshore investors. Spearheaded by the Bank of Korea and major financial institutions, these reforms aim to streamline securities transactions and strengthen communication between foreign investors and the Korean market.
Traditionally, settling FX transactions in Korea posed challenges for foreign investors, with complexities arising from time differences and interbank transfer procedures. However, the recent regulatory changes reduce the risk of settlement failures. This new framework allows investors to choose their preferred FX trading institution to enhance flexibility.
