The Hidden Battle For Digital Finance

There’s a battle brewing, and not many people have noticed…

As many celebrated the election of Donald Trump as a step toward potential freedoms for digital assets, another ongoing shift in power has remained largely unnoticed: the battle over who will control the future of financial transactions.

This article is part of the Chain Reactions series: expert opinions on everything blockchain and crypto.

The Status Quo

For centuries, financial transactions have relied on intermediaries — banks, payment processors, and currency exchanges. These third parties typically charge fees to “facilitate” these transactions. 

Among the most profitable of these intermediated services are foreign exchanges (FX), where swapping one currency for another generates substantial fees. 

This remains true even as digital automation has transformed these processes, underscoring how entrenched and lucrative FX revenues are for the banking sector. 

Any threat to this revenue stream, particularly one that could bypass banks, would understandably be met with resistance by retail and commercial banks.

At the core of this system is the two-tier banking structure: central banks regulate the flow of money and monetary policy, while commercial banks facilitate day-to-day transactions and customer interactions. This structure keeps commercial banks essential in providing financial services to the public while giving central banks oversight of the broader monetary ecosystem.

The Push Towards CBDCs

In recent years, however, there has been an increasing push to introduce central bank digital currencies (CBDCs), which could fundamentally alter this dynamic. 

Project mBridge was one of the most high-profile CBDC projects, aiming to allow countries with different currencies to conduct cross-border payments more efficiently using blockchain technology. 

The Bank for International Settlements (BIS) led a four-year pilot to explore the technology, with the hope of reducing transaction times and costs in cross-border payments.

However, the BIS recently announced its decision to leave the consortium managing mBridge and join a new project called Agorá. 

What You Need to Know About Agorá

Unlike mBridge, which focused on a single CBDC-based system for cross-border payments, Agorá emphasizes a two-tier structure by integrating tokenized commercial bank deposits with central bank assets on a shared programmable ledger. 

This shift points to a potentially less disruptive model that incorporates both central and commercial banks without bypassing the traditional roles of commercial institutions.

Agorá’s design also maintains flexibility by allowing tokenization of various assets rather than relying on a single centralized digital currency. 

Many believe this approach could maintain more of the existing financial system’s stability while still embracing digital innovation. 

By supporting multiple digital assets and working within the existing two-tier structure, Agorá may offer a more realistic and less centralized vision for the future of digital finance.

This change in focus is significant, as the participants in Agorá primarily include Western nations, while mBridge is more closely associated with the BRICS countries. 

Some speculate that the BIS’s withdrawal from mBridge was influenced by political considerations and pressures from Western commercial banks, who may see Agorá’s approach as more favorable to their interests. Additionally, with China taking a lead role in mBridge, concerns have arisen that it could eventually be used by BRICS nations to bypass international sanctions. 

This geopolitical dimension may have influenced the BIS’s decision to pivot toward Agorá, where the platform’s design aligns more closely with Western banking norms and regulatory preferences.

The Divide in the Future of Digital Currencies

It now appears there is a growing divide in the direction of digital currency development. While mBridge reflects a more centralized and potentially geopolitical initiative, Agorá represents a Western-led attempt to integrate tokenization while maintaining the status quo of two-tier banking. This division suggests that a global, unified CBDC is unlikely to materialize in the near future.

From my perspective, this development offers some hope. 

While a fully decentralized financial model remains an ideal vision for many, the risks associated with a single global CBDC—such as potential government overreach and loss of financial privacy—make it a controversial concept. 

Agorá’s tokenized model, which retains the two-tier banking system, may strike a more balanced approach. It leverages the benefits of digital assets while avoiding the potentially dystopian outcomes that a completely centralized, global CBDC could bring.

This means that the future of digital finance may involve a divided landscape, with mBridge and Agorá representing two distinct paths forward. 

For now, the global financial system appears more likely to evolve incrementally than to adopt a single, centralized digital currency. 

This outcome could allow for digital progress while preserving the structure of a two-tier banking system that many believe is essential for maintaining financial stability and accountability.