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SWIFT Testing Decentralized Technologies to Allow CBDC Interconnection

SWIFT, in collaboration with Capgemini, a digital services provider, is conducting new experiments trying to interlink domestic CBDCs and…

Nick Kerigan, LinkedIn
Nick Kerigan, LinkedIn

SWIFT, in collaboration with Capgemini, a digital services provider, is conducting new experiments trying to interlink domestic CBDCs and create a seamless cross-border payment system for digital currencies.

This step is expected: most central banks are exploring central bank digital currencies (CBDCs), and more than a quarter of them are now developing or running concrete pilots. Nine out of ten central banks are now exploring CBDCs — covering economies that account for more than 90% of global GDP, according to a new report from the Bank for International Settlements. You can read more about CBDCs in our blog, for example here and here.

Here’s what SWIFT headquarters says about the current situation and possible prospects:

“Facilitating interoperability and interlinking between different CBDCs being developed around the world will be critical if we are to fully realise their potential. Today, the global CBDC ecosystem risks becoming fragmented with numerous central banks developing their own digital currencies based on different technologies, standards and protocols,” says Thomas Zschach, Chief Innovation Officer at SWIFT.
“If left unaddressed, this fragmentation could lead to ‘digital islands’ springing up across the globe. Different systems and different CBDCs will need to be able to efficiently work together, or it will hamper the ability of businesses and consumers to make frictionless cross-border payments using CBDCs,” adds Nick Kerigan, Head of Innovation at SWIFT.

The experiments are testing the ability of CBDCs to be exchanged among systems not designed to perform such functions. In these experiments SWIFT and Capgemini are trying to deploy a gateway on a domestic CBDC network. The gateway will intercept cross-border transactions, translate them, and send to the SWIFT platform for onward transmission to another CBDC network or established payment system. The companies are addressing three cases — CBDC to CBDC, fiat to CBDC, and CBDC to fiat. Part of the already existent payments infrastructure is being reused, including existing bank messaging standards and authentication models, ISO 20022 and SWIFT’s Private Key Infrastructure. Different platforms (such as Corda and Quorum) are adopted in the experimentation.

“Navigating decentralisation is complex with many technology choices, operating models, and policy considerations. Our well-defined taxonomy has helped us accelerate our efforts to build CBDC interlinks with SWIFT. We look forward to continue to collaborate in building industry standards and frameworks with SWIFT,” says Sudhir Pai, Chief Technology & Innovation Officer, Financial Services at Capgemini.

According to the SWIFT website, their aim is “to ensure that the solution can be accessible across SWIFT’s unique community of more than 11,000 financial institutions in over 200 countries”.