SWIFT Sets Out Blueprint for Next Phase of a Central Bank Digital Currency (CBDC) Network

SWIFT Sets Out Blueprint for Next Phase of a Central Bank Digital Currency (CBDC) Network

Financial messaging system SWIFT has laid out its blueprint for a global central bank digital currency (CBDC) network after receiving positive testing results.

According to SWIFT, 24% of central banks will introduce a CBDC within the next couple of years.

Swift today announced further progress on its experimental solution for interlinking Central Bank Digital Currencies (CBDCs), reporting that 18 central and commercial banks found “clear potential and value” in the API-based CBDC connector after a comprehensive review.

The cooperative published the findings of the 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.

Interoperability is a key strategic focus for Swift, and a key challenge for the financial industry as digital currencies develop. According to the Atlantic Council, more than 110 countries are currently exploring CBDCs, with almost a quarter expecting to launch within the next one or two years1. However, most are focusing primarily on domestic usage, which could lead to a fragmented landscape consisting of ‘digital islands’.

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 sandbox testing was set up so that central and commercial banks could experiment with the solution to validate its effectiveness and share insight to guide its development.

Tom Zschach, Chief Innovation Officer at Swift, said: “Our experiments have shown the critical role that Swift can play in a financial ecosystem in which digital and traditional currencies co-exist. Our API-based CBDC connector has been proven to be robust across almost 5,000 transactions between two different blockchain networks and traditional fiat currency, and we’re delighted to have the support of our community in developing it further. Many participants have made clear their desire for continued collaboration on interoperability, and this is particularly pleasing.”

Over the coming months Swift will develop a beta version of the solution for payments that can be tested further by central banks. A second phase of sandbox testing will also be held, in which the Swift community can collaborate further with a focus on new use cases, including in securities settlement (such as cross-asset exchange), 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.

Bruno Mellado, Global Head of Payments and Receivables at BNP Paribas, said:“As new clearing alternatives arise with CDBCs, it is important that we as a community leverage the safe and transparent utilities and standards built together with Swift. This paper shows the path to an industrial approach to access new and innovative ways to transact between parties.”

Lewis Sun, Global Head of Domestic and Emerging Payments, Global Payments Solutions at HSBC, said:“Interoperability is key to realizing 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. Our continuing collaboration with Swift, central banks and other commercial banks provides an invaluable platform to innovate solutions that can bring about faster, cheaper and more secure cross-border payments.”

Stefano Favale, Executive Director at Intesa Sanpaolo, said: “When it comes to CBDCs, interoperability becomes a key enabler to avoiding liquidity traps and creating a network effect. We truly believe that Swift, through its experience and capabilities, is the natural market-neutral candidate to support future digital asset developments.”

Lee McNabb, Head of Payments Strategy & Research at NatWest, said: Collaborating with central banks, Swift and peers has allowed participants to share valuable lessons, as well as our own experiences at NatWest. We believe collaboration and supporting experiments such as this yield promising benefits, and it is a tangible example of how purpose led firms can work together to harness the potential of new technologies and support the industry to deliver instant and frictionless cross-border transactions.”

Isabelle Poussigues, Global Head of Cash Clearing Offer at Société Générale, said:“Our participation in this Swift CBDC sandbox allowed us to concretely envision what CBDC / CBDC and CBDC / 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, said:“An open, interoperable architecture is essential for secure, frictionless, and evolving cross-border payment flows in the digitization of currencies. Standard Chartered’s participation in this sandbox underscores our commitment to innovation, and to bringing future-ready capabilities to our clients.”

Swift is a global member owned cooperative and the world’s leading provider of secure financial messaging services. We provide our community with a platform for messaging and standards for communicating, and we offer products and services to facilitate access and integration, identification, analysis and regulatory compliance.

Our messaging platform, products and services connect more than 11,000 banking and securities organizations, market infrastructures and corporate customers in more than 200 countries and territories. While Swift does not hold funds or manage accounts on behalf of customers, we enable our global community of users to communicate securely, exchanging standardized financial messages in a reliable way, thereby supporting global and local financial flows, as well as trade and commerce all around the world.

As their trusted provider, we relentlessly pursue operational excellence; we support our community in addressing cyber threats; and we continually seek ways to lower costs, reduce risks and eliminate operational inefficiencies. Our products and services support our community’s access and integration, business intelligence, reference data and financial crime compliance needs. Swift also brings the financial community together – at global, regional and local levels – to shape market practice, define standards and debate issues of mutual interest or concern.

Headquartered in Belgium, Swift’s international governance and oversight reinforces the neutral, global character of its cooperative structure. Swift’s global office network ensures an active presence in all the major financial centers.