Investment Operations

Swift Unveils Additional Use Cases for CBDC Interlinking Solution

SWIFT Securities View
  • Collaborative experiments with 38 global institutions demonstrate new use cases for Swift solution across digital trade, securities and foreign exchange
  • Swift solution could enable financial institutions to easily incorporate CBDCs and other digital assets into common business practices
  • Connector can interlink multiple networks and could lead to automated trade flows and unlock growth in tokenization

Swift has announced the findings of the second phase of industry-wide sandbox testing on its central bank digital currency (CBDC) interlinking solution, with the results showing that its connector can enable financial institutions to carry out a wide range of financial transactions using CBDCs and other forms of digital tokens, easily incorporating them into their business practices.

In one of the largest known collaborations on CBDCs, 38 institutions – including central and commercial banks as well as market infrastructures – took part in experiments that found that Swift’s solution has the potential to simplify and speed up trade flows, unlock growth in tokenized securities markets, and enable efficient FX settlement – all while allowing financial institutions to continue to make use of their existing infrastructure.

Interoperability is critical to Swift’s strategy for instant and frictionless transactions. The cooperative says it has focused its innovation agenda on interoperability between digital currencies and tokenized assets to overcome the potential risk of fragmentation, caused by the development of digital currencies on different technologies and with different standards and protocols. Swift’s solution has already been shown to enable cross-border transfers and connect CBDCs on different networks with each other, as well as with fiat currencies. 

The second phase of sandbox testing went further, exploring more complex use cases, using Swift’s solution to connect and orchestrate transactions across simulated digital trade and tokenized asset and FX networks, alongside CBDCs for payments. More than 750 transactions were carried out over the course of the experiments, according to a SWIFT statement.

In digital trade, the collaborative experiments successfully demonstrated interoperability between different digital networks and trade platforms, with Swift’s solution facilitating atomic trade payments – payments that are completed simultaneously, alongside the transfer of assets, rather than sequentially. Smart contracts and event-driven programming enabled the automation of payments only once certain conditions had been met, meaning trade flows could potentially become automated 24 hours a day, seven days a week. Participants also highlighted the solution’s potential to reduce delays in global trade, enhance trust among parties, and significantly lower transaction costs.

“Interoperability between DLT networks is an important piece of the puzzle to enable efficient connectivity between CBDC and other networks and to avoid silos,” Sabih Behzad, Head of Digital Assets & Currencies Transformation at Deutsche Bank, said. “Testing Swift’s solution for different use cases such as DvP and FX with 38 commercial and central banks is a significant step to overcoming fragmentation and ensuring frictionless transactions,” Behzad said.

In securities, the lack of interoperability between tokenization platforms is a barrier to the growth of tokenization. The experiments showed that Swift’s solution was able to interlink multiple asset and cash networks and could facilitate atomic delivery versus payment across those platforms. Tokenization is a new market that is attracting widespread industry interest due to its potential to improve liquidity, lower transaction costs, and enhance transparency and security. 

Finally, the experiments showed that the connector could play a role in foreign exchange. Working closely with CLS, the connector was shown to be interoperable with the existing market infrastructure, facilitating FX netting and settlement via CBDCs. 

The full results report is available here. Swift now plans to extend its solution to support a wider range of emerging digital networks in addition to CBDCs, such as platforms for tokenized deposits.