Swift Advances Two CBDC Pilots

Swift says it has entered a new phase of its work on Central Bank Digital Currency (CBDC) interoperability, announcing that three central banks are beta testing its solution for interlinking CBDCs, while 30 financial institutions are experimenting with the solution in a new sandbox to explore further use cases.

The messaging utility has also initiated a second phase of sandbox testing, in which commercial banks, central banks and financial market infrastructures are exploring additional use cases, including trigger-based payments for digital trade platforms, FX models, delivery vs payment and liquidity saving mechanisms. The Reserve Bank of Australia, Deutsche Bundesbank, HKMA, Bank of Thailand and CLS are among the enlarged group of more than 30 leading institutions in this second phase, the first phase of the sandbox involved 18 central and commercial banks.

Swift committed to developing a beta version of its CBDC connector solution after a first iteration of sandbox testing, with participants recognising the solution’s “clear potential and value”, it says. The beta solution has taken its next step, with three central banks and monetary authorities, including the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan, integrating the solution with their own infrastructure for direct testing.

“Our focus is on interoperability – ensuring that new digital currencies can seamlessly coexist with each other and with today’s fiat-based currencies and payment systems,” explains Tom Zschach, chief innovation officer at Swift. “The financial community has already recognised the strong potential of our CBDC innovations for preventing digital islands while securely bridging the payment systems of today and the future. This next phase of testing and exploration will help us further refine the solution to ensure it is as effective as possible, and at scale.”

According to The Atlantic Council, 130 countries, representing 98% of GDP, are now exploring CBDCs and 19 of the G20 countries are in the advanced stages of CBDC development, with nine already in pilot. Swift warns, however, that this development could lead to a fragmented landscape across borders, as most countries focus on domestic usage.

Swift says, to counter this fragmentation, it has prioritised focus within its innovation agenda on interoperability for digital currencies and tokenised assets to enable them to seamlessly scale if and when they are deployed into the financial ecosystem.