SWIFT CBDC testing shows positive results, advancing the project to the next phase
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(Kitco News) - The Society for Worldwide Interbank Financial Telecommunications (SWIFT) has announced that its recent experiment testing out a solution that interlinks central bank digital currencies (CBDCs) was a success, with the 18 participating banks finding “clear potential and value” in the new system.
The 12-week collaborative sandbox testing period saw almost 5,000 transactions simulated between two different blockchain networks and with existing fiat-based payment systems. The goal of the testing was to determine if the API-based CBDC connector could meet the needs of the interbank communication service.
Based on the findings, the central and commercial banks that participated in the trial have “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,” said Tom Zschach, Chief Innovation Officer at SWIFT. “Many participants have made clear their desire for continued collaboration on interoperability, and this is particularly pleasing.”
Achieving interoperability is one of the primary objectives for SWIFT as digital currencies rise in popularity and governments move to adopt CBDCs. While there are more than 110 countries currently exploring the creation of a CBDC, “most are focusing primarily on domestic usage, which could lead to a fragmented landscape consisting of ‘digital islands,’” SWIFT warned.
In October, SWIFT revealed that it had developed a solution that enables CBDCs to move between distributed ledger technology-based and fiat-based systems using the existing financial infrastructure. The sandbox testing was then established so that central and commercial banks could experiment with the solution to validate its effectiveness and share insight to guide its development.
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.
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In the coming months, SWIFT intends to develop a beta version of its solution for payments that can be tested further by central banks. It will also initiate the second phase of sandbox testing in which the SWIFT community will be able to “collaborate further with a focus on new use cases, including in securities settlement (such as cross-asset exchange), trade finance, and conditional payments.”
“Interoperability is key to realizing the potential of CBDCs to deliver real-time cross-border payments,” said Lewis Sun, Global Head of Domestic and Emerging Payments, Global Payments Solutions at HSBC. “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.”