SWIFT Releases Blueprint for Central Bank Digital Currency Network After 8 Months of Testing

Financial messaging system SWIFT has released its blueprint for a global central bank digital currency (CBDC) network after an eight-month trial across different technologies and currencies.

The trial, which involved the national central banks of France and Germany as well as global lenders such as HSBC, Standard Chartered and UBS, looks at how CBDCs can be used internationally and can even be converted to fiat money if needed.

Around 90% of the world’s central banks are currently using, testing or considering CBDCs. Most don’t want to be left behind by bitcoin and other cryptocurrencies, but are grappling with the complexities of the technology.

SWIFT Head of Innovation Nick Kerigan said its trial, which will be followed by more advanced testing next year, is like a bicycle wheel, where a total of 14 central banks and commercial banks are located. connected together into its main hub.

The idea is that after scaling, banks may only need one major global connection, instead of thousands if they establish connections with individual partners.

“We believe the number of connections required is much less,” says Kerigan. “As a result, you’re likely to have fewer breaks (in the sequence) and you’re likely to be more productive.”

The test also examines different underlying CBDC technologies known as Distributed Ledger Technologies. The use of different technologies has also been raised as a potential barrier to rapid global adoption.

There was also a separate test conducted in conjunction with Citi, clearing house Clearstream and Northern Trust on ‘token’ assets – traditional assets like stocks and bonds converted into tokens digital, which can then be issued and traded in real time.

Some countries like the Bahamas and Nigeria already have CBDCs in operation. China has boomed with real-world tests of its digital yuan, while the central bank’s umbrella group, the Bank for International Settlements, is also conducting cross-border trials. .

However, the main advantage of SWIFT is that its existing network is already usable in more than 200 countries and connects more than 11,500 banks and funds.

The Belgium-based company has gone from virtually unknown outside the banking world to a household name this year after cutting most Russian banks from its network as part of the Western sanctions for its invasion of Ukraine.

Kerigan says that kind of move could also happen in a new CBDC system, but doubts whether it will stop countries from participating in such a system.

“Ultimately, what most central banks are looking to do is give us a CBDC for people, businesses and institutions in their jurisdiction.”

“So a solution that’s quick, efficient, and accessible to as many other countries as possible would seem an attractive solution.”

© Thomson Reuters 2022

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