Swift Takes Strides in CBDC Interoperability

• Swift addresses potential fragmentation by enabling CBDCs to scale seamlessly.
• Three central banks beta-tested Swift’s CBDC connector solution.

Swift, a global member-owned cooperative renowned for its secure financial messaging services, is making significant strides in its quest for Central Bank Digital Currency (CBDC) interoperability. In a notable development, Swift revealed on September 13 that three central banks are currently beta-testing its innovative CBDC connector solution. Simultaneously, 30 financial institutions are participating in a sandbox environment to explore the solution’s potential in various use cases.

It has come to light through Swift’s official announcement that this specific journey began when it committed to developing a beta version of its CBDC connector solution following the encouraging results of initial sandbox testing. Participants in these early stages recognized the solution’s potential and value, driving it to the current phase.

Now, three central banks and monetary authorities, including the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan, have integrated the solution into their infrastructure for direct testing.

Moreover, Swift has initiated a second phase of sandbox testing, involving commercial banks, central banks, and financial market infrastructures. Together, they are investigating additional use cases, such as trigger-based payments for digital trade platforms, foreign exchange models, delivery vs. payment, and liquidity-saving mechanisms. Esteemed institutions, including the Reserve Bank of Australia, Deutsche Bundesbank, HKMA, Bank of Thailand, and CLS, are among the 30+ leading institutions participating in this phase. The first sandbox phase saw participation from eighteen central and commercial banks.

A Milestone?

Tom Zschach, Swift’s Chief Innovation Officer, underscored the organization’s commitment to fostering interoperability. He emphasized the importance of ensuring that new digital currencies can coexist seamlessly with each other. And with existing fiat-based currencies and payment systems. 

Also, Zschach noted that the financial community has already recognized the substantial potential of Swift’s CBDC innovations. It aims to bridge current and future payment systems securely. The ongoing testing and exploration will further refine the solution to maximize its effectiveness at scale.

However, the rise of Central Bank Digital Currencies has garnered global attention, with 130 countries, representing a substantial 98% of global GDP, actively exploring CBDCs. Notably, 19 G20 countries are in advanced stages of CBDC development, with nine already in pilot phases. This widespread adoption raises concerns about potential fragmentation in cross-border transactions, as countries primarily focus on domestic usage.

Meanwhile, Swift aims to enable digital currencies and tokenized assets to seamlessly scale. Swift’s work on CBDCs began over 18 months ago. In the initial phase of experiments, nearly 5,000 transactions were simulated. It was across two different blockchain networks and with existing fiat-based payment systems.