Swift Collaborates with Three Central Banks to Pilot CBDC Interoperability

Swift has partnered with three central banks to conduct beta testing of its central bank digital currency (CBDC) connector solution in an effort to advance cross-border payments using CBDCs.

In a recent press release, the global financial messaging network said that the Hong Kong Monetary Authority and the Central Bank of Kazakhstan are among the three central banks currently integrating its solution with their CBDC infrastructure.

The collaborative project aims to establish interoperability among CBDCs, enabling seamless transactions across different digital currencies. 

“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,” Swift Chief Innovation Officer Tom Zschach said.

“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.”

Back in March, the bank started the development of the CBDC connector infrastructure using a sandbox testing process.

Swift has reported that the initial phase of testing involved 18 global financial institutions, including HSBC, Banque de France, and the Royal Bank of Canada. 

During this period, participants successfully processed 4,736 transactions between the Quorum and Corda blockchain networks, as well as between Corda and a fiat currency.

Swift Enters Second Phase of CBDC Experiments

Building upon the success of the initial phase, Swift has now entered the second phase of CBDC sandbox experiments exploring various use-cases. 

This phase involves over 30 institutions, including the Reserve Bank of Australia, Deutsche Bundesbank, HKMA, and Bank of Thailand. 

The focus of this phase includes trigger-based payments for digital trade platforms, foreign exchange models, delivery vs payment, and liquidity saving mechanisms.

Swift currently dominates the digital payments landscape with its extensive network connecting more than 11,000 banks, financial institutions, and corporations across 200 countries and territories.

However, it faces potential competition from the Bank for International Settlement’s (BIS) Unified Ledger global CBDC system, which could disrupt Swift’s core business of international money transfers. 

The Unified Ledger seeks to tokenize international central bank money, commercial money, and various assets on a single platform, enabling seamless interactions and transforming the nature of transactions.

According to the Atlantic Council CBDC tracker, 130 countries, representing 98% of global GDP, are currently exploring a CBDC, while 19 of the G20 countries are in the advanced stage of their CBDC development.

In total, 11 countries have fully launched a CBDC, which include China, The Bahamas, Nigeria, Anguilla, Jamaica, and seven Eastern Caribbean countries.

It is worth noting that the United States is among the few countries that have no confirmed plans to launch a digital currency.

However, the country has been still moving forward on a wholesale (bank-to-bank) CBDC.