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Successful testing paves way for CBDC use cross-border

Successful testing paves way for CBDC use cross-border

Technology and Innovation,
9 March 2023 | 6 min read

Central and commercial banks see “clear potential and value” in Swift’s pioneering CBDC interoperability solution, following successful testing in a sandbox environment.

Central bank digital currencies (CBDCs) are clearly gaining momentum. But as central banks around the world continue to explore the potential use of central bank-backed digital money in their local markets, how can we ensure that the evolving global payments landscape can continue to seamlessly interoperate, regardless of the form value takes?

Enabling interoperability alongside emerging innovations is a key focus for us at Swift, and a key challenge for the financial industry as digital currencies develop. According to the Atlantic Council, more than 110 countries are currently exploring a CBDC; and a recent survey by the OMFIF Digital Monetary Institute found that almost a quarter are expecting to launch within the next one or two years.  

However, most central banks are focusing primarily on domestic usage, which could lead to a fragmented landscape consisting of ‘digital islands’ if left unaddressed.

Tom Zschach
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.
Tom Zschach Chief Innovation Officer, Swift

Connecting digital islands: Results of our latest experiments

We’re working closely with the financial community to overcome this challenge, so that, as CBDCs evolve, they could also be used cross-border as well. In October last year, we announced that we had successfully developed a solution to enable CBDCs to move between DLT-based and fiat-based systems using existing financial infrastructure.

We’ve now tested that solution in a sandbox environment with 18 central and commercial banks. Participants expressed strong support for the solution’s continued development, noting that it enabled seamless exchange of CBDCs, even those built on different platforms.

“Our experiments have shown the critical role that Swift can play in a financial ecosystem in which digital and traditional currencies co-exist,” says Tom Zschach, Chief Innovation Officer at Swift. 

“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,” he says.

Global collaboration, responsible innovation

The solution development and testing has truly been a global collaborative effort. Sandbox participants included the Banque de France, the Deutsche Bundesbank, the Monetary Authority of Singapore, BNP Paribas, HSBC, Intesa Sanpaolo, NatWest, Royal Bank of Canada, SMBC, Société Générale, Standard Chartered and UBS. An additional four central banks were observers, providing input and feedback without participating in the sandbox.

During the 12-week collaborative testing period, participants processed a total of 4,736 transactions between the Quorum and Corda blockchain networks, and between Corda and a fiat currency.

Over the coming months, we will develop a beta version of the solution for payments that can be tested further by central banks. A second phase of sandbox testing will also be held, in which the Swift community can collaborate further with a focus on new use cases, including in securities settlement (such as cross-asset exchange), trade finance, and conditional payments.

Instant, frictionless, and interoperable

Technological evolution in the global payments space can unlock a range of exciting new possibilities in financial services. We will continue to innovate and experiment with our community to develop real-world solutions that support our strategic focus to enable instant, frictionless, and interoperable cross-border transactions for value in all its forms.  

Alongside our community of more than 11,500 financial institutions connecting 4 billion accounts in over 200 countries and territories, we’re helping to transform the underlying financial infrastructure that the global economy relies on, meeting the fast-changing needs and expectations of both businesses and consumers all around the globe.

Read the CBDC sandbox results report

Download our results report 'Connecting digital islands: Swift CBDC sandbox project' to learn more.

What the community is saying

Bruno Mellado, Global Head of Payments and Receivables at BNP Paribas, said: "As new clearing alternatives arise with CDBCs, it is important that we as a community leverage the safe and transparent utilities and standards built together with Swift. This paper shows the path to an industrial approach to access new and innovative ways to transact between parties.”

Lewis Sun, Global Head of Domestic and Emerging Payments, Global Payments Solutions at HSBC, said: “Interoperability is key to realising the potential of CBDCs to deliver real-time cross-border payments. While interest in CBDCs is growing, so is the risk of fragmentation as a widening range of technologies and standards is being experimented with. Our continuing collaboration with Swift, central banks and other commercial banks provides an invaluable platform to innovate solutions that can bring about faster, cheaper and more secure cross-border payments.”

Stefano Favale, Executive Director at Intesa Sanpaolo, said: “When it comes to CBDCs, interoperability becomes a key enabler to avoiding liquidity traps and creating a network effect. We truly believe that Swift, through its experience and capabilities, is the natural market-neutral candidate to support future digital asset developments.”

Lee McNabb, Head of Payments Strategy & Research at NatWest, said: Collaborating with central banks, Swift and peers has allowed participants to share valuable lessons, as well as our own experiences at NatWest. We believe collaboration and supporting experiments such as this yield promising benefits, and it is a tangible example of how purpose led firms can work together to harness the potential of new technologies and support the industry to deliver instant and frictionless cross-border transactions.”

Isabelle Poussigues, Global Head of Cash Clearing Offer at Société Générale, said: “Our participation in this Swift CBDC sandbox allowed us to concretely envision what CBDC / CBDC and CBDC / fiat currency interconnection solutions could be and the challenges they bring, while taking advantage of both the existing Swift infrastructure well known for its security and its robustness and the opportunities Swift’s enhanced platform can provide.”

David Rego, Global Head of Payments at Standard Chartered, said: “An open, interoperable architecture is essential for secure, frictionless, and evolving cross-border payment flows in the digitisation of currencies. Standard Chartered’s participation in this sandbox underscores our commitment to innovation, and to bringing future-ready capabilities to our clients.”