Key Takeaways
- Swift’s experimental API-based solution for interlinking CBDCs has received positive feedback from 18 central and commercial banks that found “clear potential and value” in the technology.
- The sandbox testing involved almost 5,000 simulated transactions between two different blockchain networks and with existing fiat-based payment systems.
- The testing allowed central and commercial bank participants to validate its effectiveness and share insights to guide its development.
- Swift’s solution enables seamless exchange of CBDCs, even those built on different platforms
- Interoperability is a key challenge for the financial industry as digital currencies develop.
As the world moves towards a cashless society and central banks explore the possibility of issuing their own digital currencies, known as Central Bank Digital Currencies (CBDCs), the need for interoperability between different CBDC systems has become increasingly important. Swift, the global financial messaging network, has been working on an experimental solution to address this challenge and has recently announced progress in its development after successful collaborative sandbox testing involving 18 central and commercial banks.
Swift has reported that its experimental API-based solution for interlinking central bank digital currencies (CBDCs) has been found to have “clear potential and value” following a comprehensive review by 18 central and commercial banks.
Swift announced in October that it had developed a solution to enable CBDCs to move between DLT-based and fiat-based systems using existing financial infrastructure.
The collaborative sandbox testing involved almost 5,000 simulated transactions between two different blockchain networks and with existing fiat-based payment systems.
Lewis Sun, Global Head of Domestic and Emerging Payments, Global Payments Solutions at HSBC, mentioned: “Interoperability is key to realising the potential of CBDCs to deliver real-time cross-border payments.
“While interest in CBDCs is growing, so is the risk of fragmentation as a widening range of technologies and standards is being experimented with,” Sun added.
Participants expressed strong support for the solution’s continued development, noting that it enabled seamless exchange of CBDCs, even those built on different platforms.
“Our experiments have shown the critical role that Swift can play in a financial ecosystem in which digital and traditional currencies co-exist,” states Swift Chief Innovation Officer, Tom Zschach.
Swift will develop a beta version of the solution for payments over the coming months and hold a second phase of sandbox testing with a focus on new use cases, including in securities settlement, trade finance and conditional payments.
Sandbox participants included the Banque de France, the Deutsche Bundesbank, the Monetary Authority of Singapore, BNP Paribas, HSBC, Intesa Sanpaolo, NatWest, Royal Bank of Canada, SMBC, Société Générale, Standard Chartered and UBS.
“An open, interoperable architecture is essential for secure, frictionless, and evolving cross-border payment flows in the digitisation of currencies,” David Rego, Global Head of Payments at Standard Chartered, said.
Many participants have made clear their desire for continued collaboration on interoperability, which suggests that Swift’s technology could play a critical role in a financial ecosystem in which digital and traditional currencies coexist.
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