Swift Says Can “easily Incorporate” CBDCs

Financial messaging network Swift has announced the findings of a six-month testing period on its central bank digital currency (CBDC) inter-linking solution, saying it could enable financial institutions to “easily incorporate CBDCs and other digital assets into common business practices”.

The experiment, involved 38 central and commercial banks – a project Swift says is “one of the largest known – found that the firm’s solution “has the potential to simplify and speed up trade flows, unlock growth in tokenised securities markets, and enable efficient FX settlement – all while allowing financial institutions to continue to make use of their existing infrastructure”.

This was the second phase of sandbox testing, exploring more complex use cases, using Swift’s solution to connect and orchestrate transactions across simulated digital trade and tokenised asset and FX networks, alongside CBDCs for payments. More than 750 transactions were carried out over the course of the experiments, the firm says.

It adds that in digital trade, the collaborative experiments “successfully demonstrated” interoperability between different digital networks and trade platforms, and that its solution facilitated atomic trade payments. Smart contracts and event-driven programming enabled the automation of payments only once certain conditions had been met, meaning trade flows could potentially become automated 24 hours a day, seven days a week. Swift says participants also highlighted the solution’s potential to reduce delays in global trade, enhance trust among parties, and significantly lower transaction costs.

In securities, the experiments showed that Swift’s solution was able to interlink multiple asset and cash networks and could facilitate atomic delivery versus payment across those platforms. Finally, Swift says the experiments showed that the connector could play a role in foreign exchange. Working closely with CLS, the connector was shown to be interoperable with the existing market infrastructure, facilitating FX netting and settlement via CBDCs.

“We’ve been able to facilitate these critical innovation experiments and show that institutions can continue to use much of their existing infrastructure alongside new, innovative technologies,” says Tom Zschach, chief innovation officer at Swift. “Fragmentation is a challenge for the entire industry, and ensuring interoperability between networks is vital to addressing this while also enabling new technologies to scale and reach their full potential.”

Swift says it now plans to extend its solution to support a wider range of emerging digital networks in addition to CBDCs, such as platforms for tokenised deposits.

Participants in the sandbox came from around the world and across the industry, including central banks and monetary authorities from Australia, Czechia, France, Germany, Singapore, Taiwan and Thailand, among others. Commercial bank and market infrastructure participants included ANZ; Citibank; CLS Group; DBS; Deutsche Bank; DTCC; HSBC; Hua Nan Commercial Bank; Intesa Sanpaolo; NatWest Group; Santander; Société Générale; Standard Chartered; Sumitomo Mitsui Banking Corporation; The Shanghai Commercial & Savings Bank; The Standard Bank of South Africa; United Overseas Bank, and Westpac Banking Corporation.

“Interoperability between DLT networks is an important piece of the puzzle to enable efficient connectivity between CBDC and other networks and to avoid silos,” says Sabib Behzad, head of digital assets & currencies transformation at Deutsche Bank. Testing Swift’s solution for different use cases such as DvP and FX with 38 commercial and central banks is a significant step to overcoming fragmentation and ensuring frictionless transactions.”