SWIFT Lays Out Blueprint for Central Bank Digital Currency Network After 8-Month Experiment

 

SWIFT's main advantage is that its existing network is already usable in over 200 countries and connects more than 11,500 banks and funds.

After an eight-month experiment with several technologies and currencies, the financial messaging system SWIFT has revealed its design for a worldwide central bank digital currency (CBDC) network.

The study examined how CBDCs may be used worldwide and even turned into fiat money if necessary. It included the national central banks of France and Germany as well as large multinational lenders including HSBC, Standard Chartered, and UBS.

The majority of central banks throughout the world are currently utilising, testing, or researching CBDCs. The majority are attempting to avoid falling behind bitcoin and other cryptocurrencies but are having trouble due to technological challenges.

The trial, which will be followed by additional in-depth testing over the coming year, was like a bicycle wheel, with a total of 14 central and commercial banks connected spoke-like into its central hub, according to Nick Kerigan, Head of Innovation at SWIFT.

When banks scale up, they might only need one primary global link as opposed to thousands of connections with individual counterparts.

We think there are substantially fewer connections required, according to Kerigan. As a result, "you are probably going to have fewer breaks (in the chain) and you probably are going to get more efficiency."

The trial also examined various Distributed Ledger Technologies, the underpinnings of CBDC. A potential obstacle has also been mentioned in relation to the employment of certain technologies.

Along with Citi, clearinghouse Clearstream, and Northern Trust, a separate trial on "tokenized" assets—traditional assets like stocks and bonds converted into digital tokens that may then be issued and exchanged in real-time—was also conducted.

Some nations, including the Bahamas and Nigeria, already have functioning CBDCs. The Bank for International Settlements, the central bank umbrella organisation, has also been conducting international experiments while China is well along with its real-world e-yuan trials.

The key benefit of SWIFT is that it already has a network that connects more than 11,500 institutions and funds and is useable in over 200 countries.

The Belgian company, which was previously almost unknown outside of the banking industry, has become well-known this year after cutting off the majority of Russian banks from its network as a result of Western sanctions for the nation's invasion of Ukraine.

Even in a new CBDC structure, according to Kerigan, such a shift might take place, although he questioned whether it would prevent nations from joining one.

The goal of the majority of central banks is to ultimately give us a CBDC for the individuals, companies, and organisations under their control.

So it makes sense that a quick, effective solution that opens up access to as many other nations as possible would be appealing.