SWIFT network ready to host CBDCs
- The main advantage for SWIFT is that its existing network is already usable in over 200 countries and connects to more than 11,500 banks and funds.
- The outcome of an 8-month experiment on different technologies and currencies is a major milestone towards enabling CBDCs smooth integration into the international financial ecosystem.
The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, has reached a breakthrough in its recent experiments, indicating that Central Bank Digital Currencies (CBDCs) and tokenized assets can move seamlessly on its existing financial infrastructure. The development marks a major milestone towards enabling the smooth integration of CBDCs into the international financial ecosystem.
According to SWIFT, the findings from the two separate experiments resolve the significant challenge of interoperability in cross-border transactions by bridging between different distributed ledger technology (DLT) networks and existing payment systems. That in turn allows digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts.
Even SWIFT’s CIO Tom Zschach believes that while digital currencies and tokens have huge potential to shape the way we will all pay and invest in the future, that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together. “We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a major step towards unlocking the potential of the digital future,” he said.
For CBDCs, he said SWIFT’s solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway, ensuring the instant and smooth flow of cross-border payments. “Tokenization has great potential when it comes to strengthening liquidity in markets and increasing access to investment opportunities, and SWIFT’s existing infrastructure can ensure these benefits can be realized at the earliest opportunity, by as many people as possible,” he added.
SWIFT, in collaboration with Capgemini, achieved CBDC-to-CBDC transactions between different DLT networks based on popular Quorum and Corda technologies, as well as fiat-to-CBDC flows between these networks and a real-time gross settlement system. “The success showed that the blockchain networks could be interlinked for cross-border payments through a single gateway, and that SWIFT’s new transaction management capabilities could orchestrate all inter-network communication,” SWIFT said in a statement.
“This important step forward builds on SWIFT’s core capabilities and means that as CBDCs and tokens develop, they can be rapidly deployed at scale to facilitate trade and investment between more than 200 countries and territories around the world,” it added. Globally, SWIFT noted that nine out of 10 central banks are actively exploring digital currencies — often using different technologies and with a primary focus on domestic use.
“For the potential of CBDCs to be fully realized across borders, these digital currencies need to overcome inherent differences to interact with each other, as well as with traditional fiat currencies,” SWIFT said. 14 central and commercial banks, including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo, are now collaborating in a testing environment to accelerate the path to full scale deployment.
In a separate experiment with a different group of participants, SWIFT similarly demonstrated that its infrastructure can serve as an interconnector between multiple tokenization platforms and different types of cash payment. For context, tokenization is a relatively nascent market, but the World Economic Forum has estimated it could reach US$24 trillion by 2027. The potential benefits include greater market liquidity and fractionalization, which could increase access to investment markets for retail investors, and enable institutional investors to build stronger portfolios.
“Working in collaboration with Citi, Clearstream, Northern Trust, and SETL, its technology partner, SWIFT explored 70 scenarios simulating market issuance and secondary market transfers of tokenized bonds, equities and cash. SWIFT successfully served as a single access point to various tokenized networks and showed its infrastructure could be used to create, transfer and redeem tokens and update balances between multiple client wallets, as well as provide interoperability between different tokenization platforms and existing account-based infrastructure,” it said.
At this point, Almost 100 countries are actively evaluating central bank digital currencies (CBDCs), according to the IMF, and some have already started rolling them out. The Sand Dollar for an example was issued by the Central Bank of the Bahamas in October 2020. It was the first nationwide CBDC in the world. Nigeria on the other hand became the first country in Africa to launch a CBDC last October — the eNaira.
With this breadth of interest in CBDCs, SWIFT’s breakthrough might well be that business rarity – an idea whose time comes at just the right moment to significantly change the world.
27 September 2023
27 September 2023
26 September 2023