SWIFT, the renowned bank messaging platform, has taken a significant step in its central bank digital currency (CBDC) interoperability project by welcoming three central banks to the beta phase. The Central Bank of Kazakhstan, the Hong Kong Monetary Authority, and an unnamed central bank have integrated their infrastructure with SWIFT’s innovative “CBDC connector solution.” This milestone strengthens the global CBDC ecosystem and underscores SWIFT’s commitment to fostering interoperability among digital currencies.
In addition to this exciting development, SWIFT has entered a new phase of sandbox testing. The initial phase, which commenced in March, featured participation from more than 18 prominent institutions, including the Société Générale, BNP Paribas, Monetary Authority of Singapore, Banque de France, HSBC, Deutsche Bundesbank, Royal Bank of Canada and NatWest. Over 12 weeks, this sandbox witnessed over 5,000 transactions, providing valuable insights into the potential of CBDC interoperability. With the latest expansion, the number of sandbox participants is set to surpass 30, further enriching the testing environment.
SWIFT’s CBDC Initiatives
SWIFT’s engagement with CBDCs extends to various projects, including a wholesale CBDC initiative conducted in collaboration with the New York Federal Reserve Bank, employing a regulated liability network. Further, SWIFT’s reach extends to more than 11,500 financial institutions globally, positioning it as a crucial player in the financial industry. However, the emergence of CBDCs presents both opportunities and challenges for SWIFT.
The Potential of Competition
While CBDCs can potentially disrupt traditional financial systems, including SWIFT’s messaging services, they also stimulate innovation. CBDC bridging projects supported by the Bank for International Settlements exemplify this potential. The competition brought about by CBDCs can drive advancements and improvements in the financial landscape, benefitting both institutions and end-users.
Progress and Achievements
In August, SWIFT announced a noteworthy achievement, with 89% of the transactions it facilitates processed within an hour, surpassing the G20’s target of achieving 75% one-hour settlements by 2027. Furthermore, 84% of transactions on the SWIFT network are conduct directly or with a single intermediary. However, practical considerations, including regulatory controls, working hours, and batch processing, mean that only 60% of wholesale payments are concluded within an hour.
SWIFT’s endeavours in CBDC interoperability represent a significant stride towards enhancing the global digital currency ecosystem. Welcoming three central banks into the beta phase and expanding its sandbox testing program demonstrate SWIFT’s commitment to adapting and innovating in response to the evolving financial landscape. As CBDCs continue to gain momentum, their interaction with established financial systems like SWIFT will likely shape the future of international finance, fostering competition and ultimately driving progress for the benefit of all stakeholders.