SWIFT makes progress with interlinking CBDCs
09 March 2023 Belgium
Image: Lila DK
SWIFT has made further progress on its experimental solution for interlinking Central Bank Digital Currencies (CBDCs).
The association made the affirmation after a comprehensive review found that 18 central and commercial banks have found “clear potential and value” in the API-based CBDC connector.
SWIFT published the findings following a 12-week period of collaborative sandbox testing, in which almost 5,000 transactions were simulated between two different blockchain networks and with existing fiat-based payment systems.
Central and commercial bank participants expressed strong support for the solution’s continued development, noting that it enabled seamless exchange of CBDCs, even those built on different platforms.
SWIFT cites the American think tank Atlantic Council which highlights that more than 110 countries are currently exploring CBDCs, with almost a quarter expecting to launch within the next one to two years.
However, most are focusing primarily on domestic usage, which could lead to a fragmented landscape consisting of ‘digital islands’.
In October, SWIFT announced that it had developed a solution to enable CBDCs to move
between distributed ledger technology-based and fiat-based systems using existing financial infrastructure.
The sandbox testing was launched to enable central and commercial banks experimentation with the solution to validate its effectiveness and share insight to guide its development.
Over the coming months, SWIFT says it will develop a beta version of the solution for payments that can be further tested by central banks.
A second phase of sandbox testing will also be held, in which the SWIFT community can collaborate with a focus on new use cases, including in securities settlement, trade finance and conditional payments.
Sandbox participants included BNP Paribas, HSBC, Royal Bank of Canada, Société Générale, Standard Chartered and UBS, among others.
Tom Zschach, chief innovation officer at SWIFT, says: “Our experiments have shown
the critical role that SWIFT can play in a financial ecosystem in which digital and traditional currencies co-exist. Many participants have made clear their desire for continued collaboration on interoperability, and this is particularly pleasing.”
Isabelle Poussigues, global head of cash clearing offer at Société Générale, says:
“Our participation in this Swift CBDC sandbox allowed us to concretely envision what
CBDC and fiat currency interconnection solutions could be and the challenges they bring, while taking advantage of both the existing SWIFT infrastructure — well known for its security and its robustness — and the opportunities SWIFT’s enhanced platform can provide.”
David Rego, global head of payments at Standard Chartered, adds: “An open,
interoperable architecture is essential for secure, frictionless, and evolving cross-border payment flows in the digitisation of currencies. Standard Chartered’s participation in this sandbox underscores our commitment to innovation, and to bringing future-ready capabilities to our clients.”
The association made the affirmation after a comprehensive review found that 18 central and commercial banks have found “clear potential and value” in the API-based CBDC connector.
SWIFT published the findings following a 12-week period of collaborative sandbox testing, in which almost 5,000 transactions were simulated between two different blockchain networks and with existing fiat-based payment systems.
Central and commercial bank participants expressed strong support for the solution’s continued development, noting that it enabled seamless exchange of CBDCs, even those built on different platforms.
SWIFT cites the American think tank Atlantic Council which highlights that more than 110 countries are currently exploring CBDCs, with almost a quarter expecting to launch within the next one to two years.
However, most are focusing primarily on domestic usage, which could lead to a fragmented landscape consisting of ‘digital islands’.
In October, SWIFT announced that it had developed a solution to enable CBDCs to move
between distributed ledger technology-based and fiat-based systems using existing financial infrastructure.
The sandbox testing was launched to enable central and commercial banks experimentation with the solution to validate its effectiveness and share insight to guide its development.
Over the coming months, SWIFT says it will develop a beta version of the solution for payments that can be further tested by central banks.
A second phase of sandbox testing will also be held, in which the SWIFT community can collaborate with a focus on new use cases, including in securities settlement, trade finance and conditional payments.
Sandbox participants included BNP Paribas, HSBC, Royal Bank of Canada, Société Générale, Standard Chartered and UBS, among others.
Tom Zschach, chief innovation officer at SWIFT, says: “Our experiments have shown
the critical role that SWIFT can play in a financial ecosystem in which digital and traditional currencies co-exist. Many participants have made clear their desire for continued collaboration on interoperability, and this is particularly pleasing.”
Isabelle Poussigues, global head of cash clearing offer at Société Générale, says:
“Our participation in this Swift CBDC sandbox allowed us to concretely envision what
CBDC and fiat currency interconnection solutions could be and the challenges they bring, while taking advantage of both the existing SWIFT infrastructure — well known for its security and its robustness — and the opportunities SWIFT’s enhanced platform can provide.”
David Rego, global head of payments at Standard Chartered, adds: “An open,
interoperable architecture is essential for secure, frictionless, and evolving cross-border payment flows in the digitisation of currencies. Standard Chartered’s participation in this sandbox underscores our commitment to innovation, and to bringing future-ready capabilities to our clients.”
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