Currency

SWIFT accelerates transition to central bank digital currencies and digital tokens


Global bank messaging network SWIFT has confirmed that a new interlinking solution could enable financial institutions to carry out a range of transactions using central bank digital currency (CBDC) and other forms of digital tokens.

Known as a connector, the solution would be used to join CBDC networks and existing payment systems and could lead to automated trade flows and unlock growth in tokenisation.

In one of the largest known collaborations on the topic, 38 institutions — including central and commercial banks, as well as market infrastructures — recently took part in a series of sandbox tests to investigate the potential of a global CBDC ecosystem.

The six-month project included 20 working group meetings with an average of 60 representatives from participating institutions focused on how SWIFT could enable interoperability between CBDCs.

Phases of testing

The first phase of testing found that SWIFT’s connector has the potential to simplify and speed-up trade flows, unlock growth in tokenised securities markets and enable efficient foreign exchange settlements.

Notably, it allows financial institutions to continue using their existing infrastructure while adopting new technologies.

The second phase, launched in July, introduced more complex use cases and employed SWIFT’s solution to connect and orchestrate transactions across simulated digital trade and tokenised asset and foreign exchange networks, alongside CBDCs for payments.

More than 750 transactions were carried out over the course of both experiments.

Critical element

Interoperability between digital currencies and tokenised assets is a critical element in SWIFT’s strategy for instant and frictionless transactions.

“Making payments infrastructure based on CBDCs efficient and interoperable with the broader economy presents some new challenges, but the majority are the same as those faced by existing payment solutions,” said chief innovation officer Thomas Zschach.

“As a co-operative that is neutral and currency-agnostic, with reach across 11,000 institutions in more than 200 countries and oversight by central banks globally, SWIFT is well placed to engage closely in the [CBDC] debate and any future evolution of money.”

SWIFT’s head of innovation, Nick Kerigan, stated the company plans to launch the platform as a product in the next 12-24 months.

Risk of fragmentation

SWIFT’s mission is to overcome the risk of fragmentation caused by the development of digital currencies on different technologies and with varying standards and protocols.

The connector has already been shown to enable cross-border transfers and join CBDCs on different networks with each other, as well as with fiat currencies.

A single point of access provided by SWIFT could also enable institutions to reuse their existing channels, reach new networks and bring down participation costs.

Growing interest

Interest in CBDCs has grown exponentially in recent years, with more than 130 countries now exploring a digital currency according to US think tank Atlantic Council.

To date, 11 countries have fully launched a CBDC while others are in advanced stages of development.

For the potential of CBDCs to be fully realised across borders, digital currencies need to overcome inherent differences to interact with each other and with traditional fiat currencies.

With new digital networks expected to co-exist with traditional market infrastructures, seamless interactions will also be needed between the new and the old.

Industry experts say CBDC has emerged as an important new tool in the global push to modernise financial infrastructure to meet the needs of an increasingly digital and connected world.

Approximately 90% of global central banks are currently investigating the adoption of digital forms of their national currencies.



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