Investment Operations

Banks Impressed with Swift’s Experimental CBDC Connector

  • Swift innovation enables CBDCs to move seamlessly on existing financial infrastructure and efficiently scale for international transactions across more than 200 countries
  • 18 central and commercial banks encourage continued development after nearly 5,000 CBDC-to-CBDC and CBDC-to-fiat simulations over 12-week period
  • Swift will build beta version for further testing and explore additional use cases in securities settlement and trade finance

Swift has confirmed further progress on its experimental solution for interlinking Central Bank Digital Currencies (CBDCs), reporting that 18 central and commercial banks found “clear potential and value” in the API-based CBDC connector after a comprehensive review.

The cooperative published the findings of the 12-week period of collaborative sandbox testing, in which almost 5,000 transactions were simulated between two different blockchain networks and with existing fiat-based payment systems. Central and commercial bank participants expressed strong support for the solution’s continued development, noting that it enabled seamless exchange of CBDCs, even those built on different platforms.

Interoperability, said the banking cooperative, is a key strategic focus for Swift, and a key challenge for the financial industry as digital currencies develop. According to the Atlantic Council, more than 110 countries are currently exploring CBDCs, with almost a quarter expecting to launch within the next one or two years.  However, most are focusing primarily on domestic usage, which could lead to a fragmented landscape consisting of ‘digital islands’.

Swift announced in October that it had developed a solution to enable CBDCs to move between DLT-based and fiat-based systems using existing financial infrastructure. The sandbox testing was set up so that central and commercial banks could experiment with the solution to validate its effectiveness and share insight to guide its development.

According to Tom Zschach, Chief Innovation Officer at Swift,  the experiments have shown the critical role that Swift can play in a financial ecosystem in which digital and traditional currencies co-exist. “Our API-based CBDC connector has been proven to be robust across almost 5,000 transactions between two different blockchain networks and traditional fiat currency, and we’re delighted to have the support of our community in developing it further,” added Zschach. “Many participants have made clear their desire for continued collaboration on interoperability, and this is particularly pleasing,” he concluded.

Over the coming months Swift says it will develop a beta version of the solution for payments that can be tested further by central banks. A second phase of sandbox testing will also be held, in which the Swift community can collaborate further with a focus on new use cases, including in securities settlement (such as cross-asset exchange), trade finance, and conditional payments.

Sandbox participants included the Banque de France, the Deutsche Bundesbank, the Monetary Authority of Singapore, BNP Paribas, HSBC, Intesa Sanpaolo, NatWest, Royal Bank of Canada, SMBC, Société Générale, Standard Chartered and UBS. An additional four central banks were observers, providing input and feedback without participating in the sandbox. According to a SWIFT statement, participants processed a total of 4,736 transactions between the Quorum and Corda blockchain networks, and between Corda and a fiat currency.