Everything you need to know about SWIFT’s CBDC project

More than 100 countries are working on their Central Bank Digital Currency (CBDC) projects, as per data from the Atlantic Council. All these countries have achieved varying levels of progress; some have launched their digital currencies, while others are either in the pilot, development or research phases.

However, many of these countries are experimenting with different technologies and standards. Moreover, most countries are focusing on the domestic usage of CBDCs. This can lead to fragmentation and the creation of walled environments among the various CBDC projects. This is where The Society for Worldwide Interbank Financial Telecommunications (SWIFT) comes in.

SWIFT is trying to build a global system that interlinks the CBDCs of various countries, thereby creating a seamless cross-border payments network. In this regard, SWIFT created a solution that would enable the movement of CBDCs between distributed ledgers and fiat-based systems.

This system was then tested through a 12-week collaborative sandbox environment that began in October 2022. For this endeavour, SWIFT roped in two blockchain networks, Quorum and Corda. The project also involved 18 central and commercial banks, including the Banque de France, Royal Bank of Canada, Monetary Authority of Singapore, Société Générale, BNP Paribas, HSBC, Deutsche Bundesbank, NatWest, Standard Chartered, UBS, etc.

In a statement issued on March 9, SWIFT disclosed that the sandbox test witnessed positive results and was ready to move on to the next phase of CBDC testing. According to the statement, SWIFT was able to process 4,736 transactions between the Quorum and Corda blockchain networks. The sandbox also successfully tested transactions between Corda and fiat payment systems. Moreover, the central and commercial banks involved in the project saw “clear potential and value” in SWIFT’s CBDC project.

“Our solution has been successfully tested across almost 5,000 transactions between two different blockchain networks and a traditional fiat currency, and we’re delighted to have the support of our community in developing it further. Many participants have made clear their desire for continued collaboration on interoperability, and this is particularly pleasing,” said Tom Zschach, Chief Innovation Officer at SWIFT.

For the next phase of its CBDC project, SWIFT aims to develop a beta version of this solution. This will allow further testing of the cross-border payment system amongst additional central banks. It will also extend the focus of the project to securities settlement, trade finance, and conditional payments. This next round of testing is expected to be carried out over the next few months.

The end goal of SWIFT’s CBDC project is to enable “central banks to connect their networks simply and directly to all the other payments systems in the world through a single gateway, ensuring the instant and smooth flow of cross-border payments,” said Zschach.

The system being developed by SWIFT would rival blockchain-native cross-border payment solutions, such as the one being developed by Ripple Labs.

However, with an existing network that connects over 11,500 financial institutions across more than 200 countries, SWIFT currently holds the upper hand in the remittance domain. And if it can develop a successful CBDC cross-border payment solution, one can assume it will see global adoption from the world’s central and commercial banks.