Swift Finds Connector Can Enable Wide Range of CBDC Transactions

Swift has released the results of the second phase of industry-wide sandbox testing on its central bank digital currency (CBDC) interlinking solution.

The findings suggest that Swift’s connector could enable financial institutions to carry out a wide range of transactions using CBDCs and other digital tokens, integrating them seamlessly into existing business practices, the global cooperative providing secure financial messaging services said in a Monday (March 25) press release.

The tests involved 38 institutions, including central and commercial banks and market infrastructures, according to the release. They demonstrated that Swift’s solution could simplify and speed up trade flows, stimulate growth in tokenized securities markets, and facilitate efficient foreign exchange (FX) settlement. Notably, the solution allows financial institutions to continue using their existing infrastructure while adopting new technologies.

“Swift is a community — a convener of and for our industry — and I’m delighted that we’ve been able to facilitate these critical innovation experiments and show that institutions can continue to use much of their existing infrastructure alongside new, innovative technologies,” Tom Zschach, chief innovation officer at Swift, said in the release.

Swift has prioritized interoperability in its strategy for instant and frictionless transactions, according to the release. The cooperative has focused on enabling interoperability between digital currencies and tokenized assets to mitigate the risk of fragmentation arising from the development of digital currencies on different technologies with various standards and protocols.

Swift’s solution has already shown the ability to connect CBDCs on different networks with each other and with fiat currencies, enabling cross-border transfers, the release said.

The second phase of sandbox testing explored more complex use cases, with over 750 transactions successfully conducted across simulated digital trade, tokenized asset and FX networks, alongside CBDCs for payments, per the release.

The experiments demonstrated the solution’s potential to reduce delays in global trade, enhance trust among parties and significantly lower transaction costs, the release said. They also showed that Swift’s solution could interlink multiple asset and cash networks, facilitating atomic delivery versus payment across different tokenization platforms.

Swift plans to extend its solution to support a wider range of emerging digital networks, including platforms for tokenized deposits, in addition to CBDCs, per the release.

The organization said in September 2022 that it had shown that CBDCs and tokenized assets “can move seamlessly on existing financial infrastructure.”

It said Swift’s solution “can provide CBDC network operators at central banks with simple enablement and integration of domestic CBDC networks into cross-border payments.”