- Federal Reserve confirms participation in Project Agorá while avoiding CBDC terminology in favor of tokenized reserves.
- US approach differs from other central banks by tokenizing existing reserves rather than creating new wholesale CBDCs.
- Trump’s executive order on CBDCs left room for wholesale solutions in interbank payments.
- Fed distinguishes between payment rails and settlement assets, viewing tokenization as a technological upgrade.
- Governor Waller explicitly distances US approach from ECB’s digital euro strategy, citing philosophical differences in public-private sector competition.
The Federal Reserve has confirmed its continued participation in Project Agorá, a major cross-border payment initiative, while clarifying its stance on tokenization versus central bank digital currencies (CBDCs). The project, involving the Bank for International Settlements (BIS), seven central banks, and 41 institutions, aims to revolutionize correspondent banking through tokenization technology.
Federal Reserve Governor Christopher Waller revealed in an Atlantic Council address that the Fed has deliberately moved away from CBDC terminology. Instead, the central bank views its approach as a technological enhancement of existing reserve systems. “Banks can use their reserves to settle in a better way,” Waller explained, emphasizing that this doesn’t create new central bank liabilities.
This strategic positioning follows a period of uncertainty after President Trump’s executive order to halt CBDC development. The order’s ambiguity regarding wholesale CBDC applications for interbank payments left room for the Fed to explore tokenization alternatives.
The Fed’s approach marks a significant departure from other central banks’ strategies. While most participating nations in Project Agorá are developing wholesale CBDCs, the US is exploring the tokenization of existing central bank reserves. This distinction reflects a fundamental difference in how central bank liabilities are viewed and managed.
Regarding the European Central Bank’s digital euro initiative, Waller drew a sharp philosophical contrast. “The government and the central bank, we do not compete directly with the private sector,” he stated, highlighting the fundamental difference between US and European approaches to digital currency innovation.
The New York Innovation Center at the New York Fed continues to explore these possibilities, focusing on practical applications that could enhance the efficiency of cross-border payments without creating new forms of central bank money.
This development represents a pragmatic evolution in central bank technology rather than a revolutionary change in monetary policy, potentially offering a model for other nations seeking to modernize their financial infrastructure while maintaining existing institutional frameworks.
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