Financial messaging system SWIFT said that it has solved one of the thorniest problems central bank digital currency (CBDC) developers have been wrestling with: How to use them for cross-border transactions.
Making CBDCs interoperable is difficult. Few of the roughly 100 countries building, studying or considering digital versions of their national currencies are working on making them interoperable via technical standards, to say nothing platforms like different blockchains — and those that are, are generally doing so in small groups with neighboring countries and trading partners.
Even the ability to use them outside the issuing country is in many cases questionable.
See also: Has SWIFT Beaten Crypto to Punch on Cross-Border Payments Interoperability?
So, SWIFT’s Oct. 5 announcement that it has “successfully shown that Central Bank Digital Currencies (CBDCs) and tokenised assets can move seamlessly on existing financial infrastructure” is a very big deal if it plays out.
Tested with 14 banks and central banks including Banque de France and the Deutsche Bundesbank, as well as HSBC, Standard Chartered, UBS and Wells Fargo, SWIFT’s solution “can provide CBDC network operators at central banks with simple enablement and integration of domestic CBDC networks into cross-border payments,” it said. And it can do so through a single Connector Gateway.
Learn more: SWIFT Shapes Global CBDC Framework Following 8-Month Study
The tests allowed it to make cross-platform transactions between CBDCs built on both J.P. Morgan’s Quorum and R3’s Corda, as well as fiat-to-CBDC transactions between those two and real-time gross settlement systems.
ECB Wants Settlement Control
Meanwhile, the European Central Bank (ECB) said that a likely-but-not-certain digital euro would require the Eurosystem to act as middlemen in validating transactions, at least in the beginning.
Related: ECB Holds Off on P2P Digital Euro Transactions
As a “a digital euro would mean holding a direct liability of the central bank,” ECB board member Fabio Panetta said in a Sept. 29 speech that “the Eurosystem would be liable for any mistake made in digital euro settlement. It is therefore of utmost importance that the Eurosystem retains full control over digital euro issuance and settlement.”
Having the Eurosystem “perform the settlement activities” is the best way to ensure this, he added.
Digital Dollar Authority
The Federal Reserve has said over and over that it won’t build a digital dollar without Congressional approval. That said, promises aren’t binding, which is why 11 Republicans on the House Financial Services Committee asked Attorney General Merrick Garland for a Justice Department “assessment of whether legislative changes would be necessary to issue a CBDC.”
Read more: Republicans Ask for DOJ Help in CBDC Fight
Noting that the Supreme Court has ruled that “Congress’ authority over coining money is exclusive,” the signatories of the Oct. 5 letter want a formal statement that the Biden Administration — and subsequent administrations — will not move ahead without Congressional approval. It’s not a partisan issue, however, as more than a few Democrats agree.
No to Amazon
European Union legislators may be interested in a digital euro, but it seems they aren’t interested in having Amazon help build it.
Members of the European Parliament blasted Panetta over the decision to have Amazon contribute to the development of a CBDC, CoinDesk wrote last week.
“In July 2022, you were saying about the digital euro that it would protect the strategic autonomy of European payments and monetary sovereignty,” said Stéphanie Yon-Courtin, a lawmaker from French President Emmanuel Macron’s governing coalition. “You were also saying that a digital euro would help to avoid market dominance. Three months later, we’ve been announced that Amazon has been selected over 54 companies.”
Crossing Borders
One of those CBDC interoperability test coalitions led by China announced it had finished a 40-day trial settling trades via its CBDC mBridge platform, the South China Morning Post reported on Sept. 29.
The tests included 160 cross-border payments and foreign exchange transactions with Hong Kong, Thailand and the United Arab Emirates, totaling more than $22 million in digital yuan. The Bank for International Settlements (BIS) participated, calling it a success.
Meanwhile, Sweden, Norway and Israel have tested cross-border CBDC payments, their central banks announced last week.
The trials have allowed them to “gain better understanding of important design and policy choices needed to secure cross-border functionalities if we decide to issue” a CBDC, said Mithra Sundberg, head of the e-krona division at Sweden’s Riskbank, according to Ledger Insights.
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