SWIFT: Three Central Banks to Start CBDC Testing

SWIFT’s CBDC Testing

CBDCs stand for Central Bank Digital Currency and they are digitized versions of a legal tender. According to a recent declaration issued by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), three Central banks are now testing CBDCs.

SWIFT network has also revealed that it is working on adding a new update to introduce interoperability to CBDCs. At present, the Central Banks mentioned before are conducting beta-testing for CBDCs in tandem with 30 financial enterprises and researching more practical utility.

SWIFT has revealed that the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan have been adding new features to their CBDC projects. These new features are added to the infrastructure of the CBDCs to be checked during the testing process.

However, the network has left the third Central Bank unnamed in the recent statement. Tom Zschach, the Chief Innovation Officer at SWIFT has revealed that the international digital payments network is currently focused on interoperability.

SWIFT is Working on Bringing Interoperability to CBDCs

According to Zschach, SWIFT networks are now focused on bringing interoperability solutions to CBDCs. The firm has noted that at present around 130 countries in the world are working on developing a native CBDC project. Therefore, it is possible that several of the CBDC projects may have to deal with fragmentation issues.

It could pose an issue for international trade if the CBDC of one country is not compatible with its counterparts. On this account, SWIFT is focusing on introducing interoperability solutions for financial entities and sovereign states.

It is important to note that SWIFT is a legacy banking network that facilitates the biggest portion of international money transfers. G10 Central Banks jointly oversee the management and development of SWIFT.

The payments behemoth has reported that has now developed a connector tech that will allow various CBDCs to communicate and interact with each other using SWIFT technology as the bridge.

In this manner, various Central Banks will be able to continue international transactions on SWIFT using CBDCs built on different infrastructures rather than fiat currencies.

The payments giant has identified fragmentation as a major problem faced by Central banks regarding CBDCs networks. It means that Central Banks are currently working on developing standalone CBDCs that may not be able to communicate or interact on account of different designs.

In this instance, central banks will be able to depend on SWIFT systems to offer a middleman that allows one CBDC project to conduct transactions with another Central Bank. The interoperability solution was initiated 18 months ago and included experiments and sandbox testing.

Pilot Phase

The pilot phase facilitated 5000 transactions using two separate blockchain networks. However, these blockchains were dealing in fiat currencies rather than virtual tokens.

Central Banks and independent financial companies that participated in the process noted that connector network can enable seamless exchange for various types of CBDCs as well.

As per CIO, when the CBDC pilots go into the practical implementation phase the connector system developed by SWIFT networks will become instrumental for Central Banks who wish to perform international trades.

Thus, rather than using SWIFT networks for fiat currency payments, the international trade markets will be able to upgrade to its CBDC plug-in that will allow them to conduct transactions on an international scale.