CBDCs interoperability: 5 key takeaways from our ground-breaking experiments

We want to make sure the global financial community is ready for a future where digital currencies may exist alongside traditional ones – whether that change happens in one, two, or ten years’ time.

Interoperability and collaboration will be crucial to success – that’s why we’re collaborating with the financial community to ensure that, as Central Bank Digital Currencies (CBDCs) develop, they can integrate seamlessly with existing payment systems.  

We recently ran a ground-breaking set of experiments that pave the way for the use of CBDCs across borders. To help you get up to speed, we’ve pulled together the five key things you need to know about this pioneering work.

1. CBDCs are gaining strong momentum

Nine in 10 central banks worldwide are now exploring CBDCs, according to the Atlantic Council, covering economies that account for more than 95% of global GDP. Ten countries are already live with their own digital currency, China is set to expand its pilot in 2023, and the European Central Bank is currently investigating the optimal design for a digital euro.

We believe that the financial industry should prepare now for a future in which using CBDCs to make international payments could be routine.

2. The CBDC landscape could become fragmented globally

Today, the global CBDC ecosystem risks becoming fragmented with numerous central banks developing digital currencies based on different technologies, standards and protocols. If left unaddressed, this fragmentation could lead to ‘digital islands’ springing up across the globe.

Consequently, developing a way for transactions to flow between different CBDC constructs and platforms will be critical. A bilateral solution between two countries would work, but such a system would not be scalable, and would be unmanageable if applied globally.

A multilateral interoperability mechanism is therefore needed to connect up CBDC networks and existing payment systems globally, and thus enable CBDC transactions to flow across borders in a seamless and frictionless way.

3. A global interlinking solution is feasible

Our experiments demonstrated that it’s possible to connect disparate CBDCs to achieve successful cross-border transactions between different DLT-based CBDC systems and with established payments infrastructure.

Working in collaboration with Capgemini, we built a simulation of Swift’s enhanced platform and a connector gateway that, when combined, are capable of linking CBDC and existing payment systems up at the technical level. Our experimental solution is capable of solving for BIS multi-CBDC Model 2, which foresees the interlinking of multiple CBDC systems via a shared technical interface.

4. Simplicity is necessary to scaling global CBDC transactions

With so many CBDCs in development across the world, any interlinking solution must be straightforward for central banks to implement. That’s why we’ve designed our experimental solution so banks can easily integrate their domestic CBDC flows into the cross-border payments system. This is made possible by an experimental connector gateway we’ve developed that enables the communication between different CBDC networks and payment systems.

And there will be no need to invent new ways of ensuring security, compliance, authentication and tracking either. We're leveraging the ISO 20022 standard to ensure that CBDC transactions carry rich, standardised payment data. Over time we also aim to integrate our CBDC solution into Swift’s current suite of products and services that are used by our 11,000+ members every day to make sure that their cross-border payments are fast, secure, transparent and compliant.  

5. More collaboration is the way forward

While our experiments have proven highly successful, further collaborative innovation is needed to ensure that Swift and our community are ready to support future CBDC transactions across borders. We’ve deployed a sandbox environment that allows us to engage, test and, collaborate with the financial community in an open and innovative way.

Our CBDC sandbox is now being used by 18 institutions – including central banks, market infrastructures and commercial banks from across the globe – to assess potential use cases and wider CBDC interoperability.

Incorporating multiple blockchain technologies, the sandbox not only enables bilateral testing, but also facilitates opportunities for our customers provide their feedback in real-time and contribute to the design of next generation CBDC solutions.

Want to learn more?

Download our report Connecting digital islands: CBDCs – Results of Swift experiments interlinking CBDC networks and existing payments systems to achieve global interoperability.

 You can also reach out to your Swift account manager or contact us.