SWIFT Plans to Unveil a New CBDC System Within Two Years

SWIFT is planning to unveil a new platform within the next 12-24 months that will promote the interconnectedness of central bank digital currencies (CBDCs).

According to a Reuters report, this initiative will spearhead the launch of a new CBDC ecosystem supported by SWIFT's giant role in the global banking industry. SWIFT will likely start implementing the solution after leading economies unveil their CBDCs.

SWIFT's recent initiative comes as a majority of central banks explore government-backed digital currencies. As the cryptocurrency industry grows, the traditional financial system does not want to be left behind. However, policy decisions and technological limitations are affecting the ability of CBDCs to thrive.

SWIFT Explores an Interlinking Solution for CBDCs

SWIFT has been working on an interlinking solution for CBDCs over the past six months. During this time, the global banking messaging platform worked with 38 global firms during the second phase of Sandbox testing for this solution.

The results are in!

Over the last six months, we've been working with 38 global institutions on one of the largest CBDC experiments to date. And we're really excited about the results.

In the second phase of sandbox testing, we explored more complex use cases. We... pic.twitter.com/ZakMwXhJW6

- Swift (@swiftcommunity) March 25, 2024

in the official statement, SWIFT noted that the latest trial was the largest known CBDC experiment in history. During the sandbox trial, the institution worked on demonstrating how the interlinking solution could be used in digital trade, FX networks, tokenized assets, and payments.

The experiment involved 125 users who made more than 750 transactions. The trial helped prove that a CBDC interlinking solution could promote fast and simple trade flows. It could also promote the growth of tokenized securities markets while enabling seamless FX settlements.

While speaking to Reuters, the head of innovation at SWIFT, Nick Kerigan, said the sandbox testing demonstrates banks could use the existing infrastructure alongside the interlinking solution. According to Kerigan, the trial was a huge success and gave SWIFT a solid timeline.

The timeline given of between 12 and 24 months could change depending on the time it takes leading economies to launch CBDCs.

SWIFT Is Asserting Its Dominance in Banking

Having a solution ready for when big banks launch CBDCs will assert SWIFT's dominance over the bank-to-bank messaging network. SWIFT's network is used in more than 200 countries to connect over 11,500 banks and funds to send trillions of dollars daily.

SWIFT's popularity is growing beyond the banking industry. Since 2022, after the messaging network removed a majority of Russian banks from its network. SWIFT has become popular globally, and according to Kerigan, this popularity will grow under the new CBDC system.

Some banks that participated in the latest CBDC sandbox testing include the central banks of leading economies such as Australia, Singapore, Germany, and France. Some central banks that participated in the trial opted to remain anonymous according to SWIFT.

The traditional banking industry was also not left behind. Top commercial banks like Citibank, Deutsche Bank, HSBC, Standard Chartered, and Societe Generale. Two banks from China were also involved.

Solving the Issue of Fragmentation

SWIFT plans that as soon as the interlink solution is scalable and working, banks will have a single focal point to use to promote digital asset payments. Having a single platform will promote efficiency compared to having thousands of connection points to promote CBDC payments.

According to SWIFT, as central banks explore their CBDCs. The risk of fragmentation remains high because of using different technologies protocols, and standards.

Fragmentation is a challenge for the entire industry. And ensuring interoperability between networks is vital to addressing this while also enabling new technologies. To scale and reach their full potential," said the Chief Innovation Officer at SWIFT, Tom Zschach.

SWIFT is at the forefront of promoting interoperability in the banking industry to promote frictionless and instant transactions. The messaging network seeks to make digital currencies and tokenized assets interoperable to solve the risk of fragmentation.

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