SWIFT ready to support CBDCs- The Cryptonomist

On Wednesday, the company that controls the international payments system, SWIFT, created in 1973 and based in Belgium, announced that it had resolved the problem that prevented transactions in its system to state digital currencies (CBDC). 

The company also said it has made the first transactions between different blockchains using digital state currencies as well as other currencies:

“Blockchain networks could be interlinked for cross-border payments through a single gateway. SWIFT’s new transaction management capabilities could orchestrate all inter-network communication.”

SWIFT implements CBDC support in its network

This announcement confirms the fact that the system of state digital currencies is set to increase its adoption more and more, confirmed by the fact that there are currently about ninety countries pursuing their own state digital currency projects.

This achievement, as Reuters reports, would be the result of 8 months of experiments by the SWIFT system aimed at testing precisely the possibility of making payments with these new digital currencies, which may soon see the light of day in several countries. 

Recently, the European Central Bank’s board member Fabio Panetta said that the central bank would be ready to launch the first tests on the digital euro project, the Italian member of the bank’s board said that this would be an important innovation, useful for everyone: 

“A well-designed digital euro would bring benefits for everyone. It would provide a payments solution for anyone needing to make or receive a payment. It would ensure that a standardised infrastructure is available to everyone. And it would serve as a strong foundation for intermediaries to offer payment services throughout the euro area, thereby fostering competition and innovation.”

The Bundesbank itself reportedly called on the ECB to speed up the timetable to be ready for launch by the end of 2023.

SWIFT announced that its experiments to overcome the difficulties encountered of inoperability between different blockchains have been carried out with the participation of the central banks of France and Germany, as well as HSBC, NatWest, Standard Chartered, UBS and Wells Fargo, SWIFT said it has carried out transactions between different blockchain networks, using both CBDC and legal currencies.

SWIFT’s head of innovation, Nick Kerigan, explained these experiments, with a metaphor related to the world of bicycles, saying that this test is just the first in a long series of other trials that will last at least a year.

“We believe that the number of connections needed is much fewer,” Kerigan said. “Therefore, you are likely to have fewer breaks (in the chain) and you are likely to achieve greater efficiency.”

CBDCs, on the other hand, are an important tool that is causing much discussion among states about their importance but also about the privacy and security issues of these new digital state currencies. US President Biden in his executive order issued last March expressly called on all financial institutions to analyze all possible impacts on the traditional financial system from the adoption of a new digital dollar.

During these trials conducted by SWIFT in partnership with other international financial organizations, there was also a separate trial conducted with Citi, the clearinghouse Clearstream and Northern Trust on tokenized assets.

According to Kenneth Goodwin, Director of Regulatory and Institutional Affairs at the Blockchain Intelligence Group, this news confirms the thesis that central banks are finally beginning to consider and test their own digital state currency projects, which do require a special and very expensive infrastructure necessary to actually launch them into the marketplace. 

“The central banks are basically saying — these governments are saying, ‘How do we have the right network infrastructure that’s going to prepare us…to actually do these executions on a digital platform that’s very secure?” Goodwin said. “And that’s where SWIFT comes into play.”

The company said it was fully satisfied with these tests, which show that the adoption of these digital currencies is also possible for making cross-border payments. 

“SWIFT has successfully shown that Central Bank Digital Currencies (CBDCs) and tokenised assets can move seamlessly on existing financial infrastructure – a major milestone towards enabling their smooth integration into the international financial ecosystem.”

SWIFT said in a note.

Some countries such as the Bahamas and Nigeria already have CBDCs up and running. China is well underway with real-world trials of an e-yuan, while the umbrella group of the central bank, the Bank for International Settlements, has also conducted cross-border trials.