New collaborative experiments explore more complex CBDC use cases

For the last six months, we’ve been working with 38 global institutions on the second phase of sandbox testing on our central bank digital currency (CBDC) interlinking solution. This is one of the largest known CBDC experiments to date and we’re excited to share the results of this industry-wide collaboration.

In this phase of our sandbox testing, we focused on demonstrating how our solution could be used in more complex use cases. These include simulated digital trade, tokenised asset and FX networks, as well as CBDCs for payments. Over the course of the project, over 125 sandbox users made more than 750 transactions.

“Swift is a community – a convener of and for our industry – and I’m delighted that we’ve been able to facilitate these critical innovation experiments,” says Tom Zschach, Chief Innovation Officer at Swift. “They show that institutions can continue to use much of their existing infrastructure alongside new, innovative technologies.”

The results are in

The experiments found that our interlinking solution has the potential to simplify and speed up trade flows, unlock growth in tokenised securities markets, and enable efficient FX settlement. And this, all while allowing financial institutions to make use of their existing infrastructure.

Digital trade

In digital trade, our experiments successfully demonstrated interoperability between different digital networks and trade platforms, with Swift’s solution facilitating atomic trade payments (payments that are completed simultaneously alongside the transfer of assets, rather than sequentially).

Smart contracts and event-driven programming enabled the automation of payments once certain conditions had been met, meaning trade flows could potentially become automated 24 hours a day, seven days a week. Participants highlighted the solution’s potential to reduce delays in global trade, enhance trust among parties, and significantly lower transaction costs.

Securities

Tokenisation is a new market that’s attracting widespread interest due to its potential to improve liquidity, lower transaction costs, and enhance transparency and security. But the lack of interoperability between tokenisation platforms has been a barrier to this market’s growth.

Our experiments showed that the Swift connector was able to interlink multiple asset and cash networks, and could facilitate atomic delivery versus payment (DvP) across those platforms.  

Foreign exchange

Finally, we showed that our connector could play a role in foreign exchange (FX). Working closely with CLS, the connector was shown to be interoperable with the existing market infrastructure, facilitating FX netting and settlement via CBDCs.

Why it matters

Interoperability is critical to our strategy for instant and frictionless transactions. With this in mind, we’ve focused our innovation agenda on facilitating interoperability between digital currencies and tokenised assets to overcome the potential risk of fragmentation. 

With so many financial institutions exploring their own CBDCs and other forms of tokenised value, there’s a real risk of fragmentation due to the different technologies, standards and protocols used. 

“Fragmentation is a challenge for the entire industry,” says Zschach. “And ensuring interoperability between networks is vital to addressing this while also enabling new technologies to scale and reach their full potential.”

In past experiments, our solution was shown to enable cross-border transfers and connect CBDCs on different networks with each other, as well as with fiat currencies. This new phase builds on those successes and demonstrates our commitment to helping our community prepare for an increasingly digital future.

Who took part?

Participants in the sandbox came from around the world and across the industry, including central banks and monetary authorities from Australia, Czechia, France, Germany, Singapore, Taiwan and Thailand, among others. Commercial bank and market infrastructure participants included ANZ; Citibank; CLS Group; DBS; Deutsche Bank; DTCC; HSBC; Hua Nan Commercial Bank; Intesa Sanpaolo; NatWest Group; Santander; Société Générale; Standard Chartered; Sumitomo Mitsui Banking Corporation; The Shanghai Commercial & Savings Bank, Ltd; The Standard Bank of South Africa; United Overseas Bank; and Westpac Banking Corporation.

What’s next?

With this phase complete, we plan to extend our solution to support a wider range of emerging digital networks, in addition to CBDCs, such as platforms for tokenised deposits. 

What participants are saying

Sabih Behzad, Head of Digital Assets & Currencies Transformation at Deutsche Bank, said: “Interoperability between DLT networks is an important piece of the puzzle to enable efficient connectivity between CBDC and other networks and to avoid silos. Testing Swift’s solution for different use cases such as DvP and FX with 38 commercial and central banks is a significant step to overcoming fragmentation and ensuring frictionless transactions.”

Lewis Sun, Global Head of Domestic and Emerging Payments, Global Payments Solutions at HSBC, said: “The ability to interlink emerging and existing market infrastructures is essential to realizing the potential benefits brought on by tokenization and CBDCs. HSBC is excited to continue the collaboration with Swift and other industry peers to incubate an open, inclusive and technology-agnostic model that allows for more efficient payment-versus-payment, delivery-versus-payment, and trade settlement across different networks.”

Stefano Favale, Global Head of Global Transaction Banking at Intesa Sanpaolo, said: “The Swift connector will help interlinking different technologies behind CBDCs and digital asset platforms, reducing the risk of fragmentation and preparing the innovative market to grow.”

Carmen Rey, Head of Swift and CIB Payments at Santander, said: “This initiative solves the need to ensure interoperability in the future CBDC ecosystem by leveraging on existing connections. This will help to facilitate access and usage of CBDCs in the new complex world of digital payments. It also resolves the need to have some standardization and common rules which is another key success factor to expand the use of CBDCs.”

Dirk Bullmann, Global Head of Public Policy at CLS, said: “Our collaboration with Swift and other key industry players demonstrates our commitment to exploring innovative technologies that reduce risk and increase efficiency while also meeting high standards of resilience. As the leading provider of FX settlement services, CLS’s participation in the Swift sandbox allowed us to jointly gain a better understanding of how netting and settlement of cross-currency payments could be designed in a CBDC world.”