Swift Advances CBDC Innovation as Interlinking Solution Begins Beta Testing

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

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’. 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.

Swift 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, foreign exchange 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. Eighteen central and commercial banks took part in the first phase of the sandbox.

Tom Zschach, Chief Innovation Officer at Swift, said: “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. 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. Nineteen of the G20 countries are in the advanced stages of CBDC development, with nine already in pilot.¹ However, there is potential this development could lead to a fragmented landscape across borders, as most countries focus on domestic usage.

Swift, to counter this fragmentation, 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. Its specific work on CBDCs began more than 18 months ago and, in the first phase of its experiments and sandbox testing, almost 5,000 transactions were simulated between two different blockchain networks and with existing fiat-based payment systems. Central and commercial bank participants noted that the connector enabled the seamless exchange of CBDCs, even for those built on different platforms.