Swift advances CBDC interoperability testing into second phase

Swift, the interbank cooperative, is making significant strides in the world of Central Bank Digital Currencies (CBDCs) as it enters the second phase of its interoperability testing. Collaborating with three central banks and over 30 financial institutions, including the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan, Swift is pioneering a groundbreaking method to bridge CBDCs with existing fiat-based infrastructures.

Phase one success & the next frontier

Building upon the findings of a 12-week sandbox testing period that involved simulating nearly 5,000 transactions between blockchain networks and fiat-based systems, Swift has pushed forward into its beta phase. In this crucial step, central banks and monetary authorities are integrating Swift's solution into their infrastructures for direct testing. The beta solution has progressed further, with direct testing now underway as three central banks and monetary authorities, among them the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan, have integrated the solution into their own infrastructure.

Furthermore, Swift has commenced the second phase of sandbox testing, where an expanded group of over 30 prominent institutions, including commercial banks, central banks, and financial market infrastructures, are actively exploring supplementary use cases. These include trigger-based payments for digital trade platforms, foreign exchange models, delivery versus payment, and mechanisms for saving liquidity. Participants in this phase include the Reserve Bank of Australia, Deutsche Bundesbank, HKMA, Bank of Thailand, and CLS.

Interoperability: The key focus

Swift's Chief Innovation Officer, Tom Zschach, underscores the significance of interoperability in this endeavor. He explains, "Our focus is on interoperability - ensuring that new digital currencies can seamlessly coexist with each other and with today's fiat-based currencies and payment systems." Swift aims to prevent the emergence of digital islands and establish a secure bridge between current payment systems and the future.

Countering fragmentation

With 130 countries, representing 98% of global GDP, exploring CBDCs and 19 G20 nations already in advanced stages of development, the potential for a fragmented CBDC landscape looms. Swift, however, is strategically prioritising interoperability to ensure CBDCs and tokenised assets can scale seamlessly within the financial ecosystem.

As the world rapidly advances towards digital currencies, Swift's pioneering work in CBDC interoperability emerges as a critical solution to prevent fragmentation, facilitating a smoother transition into the digital financial era. The financial community is eagerly watching as this innovative cooperative continues to refine and expand its solution, forging a path towards a globally connected CBDC ecosystem.