SWIFT’s CBDC experiments yield astonishing results.

  • October 20, 2022
  • Jennifer Moore
SWIFT’s CBDC experiments yield astonishing results.

For the past eight months, SWIFT has worked with different currencies and technologies worldwide by collaborating with global lenders and central banks. The ultimate aim of SWIFT’s trials was to create a blueprint for CBDC usage across borders.

SWIFT conducted two CBDC experiments and has concluded that it has received positive results in both. Thus, it proves that the tokenized assets and CBDC (Central Bank Digital Currencies) can move seamlessly via legacy financial infrastructure. This trail is to be followed by advanced testing in 2023. The experiments have paved the way for deploying CBDC globally by solving interoperability challenges.

Also Read: Market Analysis: Tools and Techniques for Better Investment and Crypto Wealth Management

Impact of SWIFT’s CBDC Breakthrough

  • These experiments are a milestone toward smoother integration of tokenized assets and CBDC.
  • Solves the interoperability challenges of cross-border transactions by combining different DLT networks and current payment systems. It can create a frictionless, instant, and interoperable cross-border transaction.
  • It proves a scenario where digital currencies/assets can flow or interact along with legacy counterparts.
  • These experiments will boost the rapid development of tokens and CBDC for investment and trade between 200+ countries worldwide.
  • Development of a new standard SWIFT GO for low-value transactions and Payment Pre-validation for pre-checking payments with predictive intelligence. Such a technology would help to prevent mistakes that lead to delays.

Also Read: BIS Acknowledges CBDC Project Success with Completion of Transactions Worth $22 Million

SWIFT Experiments

Nine in ten central banks have used different technologies to explore digital currencies. However, its potential has been limited to domestic usage up until date. Now, thanks to SWIFT, people can use them for cross-border transactions. SWIFT conducted two separate experiments to prove its cross-border transaction feasibility and interconnector capabilities.

  • First CBDC Experiment 

The first experiment recorded CBDC-CBDC transactions over multiple blockchain networks, fiat-CBDC transactions, and instant settlements. The same is currently under test with real-time variables by 14 commercial and central banking institutions. SWIFT claims blockchain networks can facilitate cross-border payments via a singular gateway when interlinked.

  • Second CBCD Experiment

Several financial institutes and technology partners collaborated on the second experiment. SWIFT collaborated with Northern Trust, Citi, and Clearstream (clearing house) for this trial. Under this experiment, the team explored 70 scenarios to reflect real-time market transfer of tokenized equities and bonds. The team used bonds and stocks that can be converted into tokens for issuing and trading. Thereafter, the experiment successfully showcased the possibility of interoperability of multiple tokenized platforms.

Thus, it proves that tokenized network infrastructure can create/transfer/redeem tokens and update the balance in multiple wallets. Tokenization is a relatively nascent market. However, according to market forecast,  it would reach $7766.6 million in 2028.

The Interpretation Of The Outcome

The main advantage is that SWIFT used its entire network of 200 countries with 11,500 banks and their funds. The trials proved that in the future, central banks could connect their networks directly to other payment systems via a singular gateway. Such a cross-border payment will be instant and smooth. According to Tom Zschach of SWIFT, this is a significant step towards unlocking the digital future. Once scaled up, this ideology will reduce the number of intermediaries using one global connection rather than individual ones. 

He also mentioned that digital currencies would alter how we pay/invest. Tokenization improves market liquidity, thereby increasing investment opportunities for people in different financial brackets. Given SIFT’s current infrastructure, all these advantages can be realized as soon as possible.

Other Ongoing CBDC Experiments

  • BIS completed the mBridge trial with the UAE, Thailand, and Hong Kong central banks. BIS is about to start another test with Norway, Israel, and Sweden to test CBDC’s potential in remittance and retail payments. Therefore, this trial will focus on the design choices, technology, and architecture and explore trade-offs and policy questions. These outputs will be crucial for implementing cross-border payments.
  • India is slated to launch the blockchain-powered Digital Rupee CBDC by 2023.
  • Central banks of Thailand, China, Indonesia, and Russia are also in the middle of CBDC developments after successfully testing them last year.

SWIFT’s Progress

The proof-of-concept allows SWIFT to command token transfer across every blockchain environment. Thereafter, Chainlink advocates that this will help institutes to be blockchain-capable without the need for high capital and other associated development constraints. Also, SWIFT is collaborating with TCH and EBA CLEARING to deliver the IXB pilot service. This service will use legacy systems for transferring money across borders. For instance, the IXB pilot uses RT1 of Europe (EBA clearing) and RTP of the USA and creates a connection between them to transfer money. In the future, this model can allow the addition of more currency corridors. 

Wrapping Up

Experts always see CBDC as the future as it is programmable to meet the government’s and individuals’ needs. Although people have raised issues regarding surveillance and privacy. Moreover, the trials by SWIFT have shown the advantages of choosing CBDCs.

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