Swift completes second testing phase for its CBDC interlinking solution
26 March 2024 Brussels
Image: AdobeStock/gmcphotopress
Swift has published the results of the second testing phase of its central bank digital currency (CBDC) connectivity solution.
This CBDC sandbox has attracted participation from 38 organisations worldwide, including central and commercial banking institutions and market infrastructure entities.
This testing phase concludes that the Swift CBDC 鈥渋nterlinking solution鈥� offers potential to accelerate and simplify trade flows, to support greater efficiency in foreign exchange settlement and to facilitate the growth of tokenised securities markets.
This connector will enable financial institutions to conduct a wide range of transactions employing CBDCs and other forms of digital tokens, while enabling these firms to make use of their existing trading and payments infrastructure.
Swift indicates that the lack of interoperability between tokenisation platforms has presented an obstacle to the growth of tokenisation. However, results from this second phase of sandbox testing indicated that Swift鈥檚 solution could link multiple asset and cash networks and facilitate atomic delivery-versus-payment (DvP) settlement across those platforms.
The testing also confirmed that the connector could play a role in foreign exchange transactions, says the Brussels-based financial messaging network. Working with CLS, the Swift connector was found to be interoperable with the existing market infrastructure, facilitating FX netting and settlement employing CBDCs.
This second testing phase has extended the project coverage to include a more complex set of use cases, employing Swift鈥檚 solution to connect and support transactions across simulated digital trade, tokenised assets and foreign exchange networks. This involved testing of more than 750 simulated transactions.
The sandbox programme has included financial institutions from around the globe, including central banks and monetary authorities from countries including Australia, the Czech Republic, France, Germany, Singapore, Taiwan and Thailand.
Swift鈥檚 chief innovation officer Tom Zschach says: 鈥淪wift is a community 鈥� a convener of and for our industry. [We have] been able to facilitate these critical innovation experiments and show that institutions can continue to use much of their existing infrastructure alongside new, innovative technologies.
鈥淔ragmentation 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.鈥�
Lewis Sun, HSBC鈥檚 global head of domestic and emerging payments, Global Payments Solutions says: 鈥淭he ability to interlink emerging and existing market infrastructures is essential to realising the potential benefits brought on by tokenisation and CBDCs.
鈥淗SBC [will] continue the collaboration with Swift and other industry peers to incubate an open, inclusive and technology-agnostic model that allows for more efficient payment-versus-payment, delivery-versus-payment, and trade settlement across different networks.鈥�
CLS鈥� global head of public policy Dirk Bullmann, adds: 鈥淥ur collaboration with Swift and other key industry players demonstrates our commitment to exploring innovative technologies that reduce risk and increase efficiency while also meeting high standards of resilience.
As the leading provider of FX settlement services, CLS鈥� participation in the Swift sandbox allowed us to jointly gain a better understanding of how netting and settlement of cross-currency payments could be designed in a CBDC world.鈥�
This CBDC sandbox has attracted participation from 38 organisations worldwide, including central and commercial banking institutions and market infrastructure entities.
This testing phase concludes that the Swift CBDC 鈥渋nterlinking solution鈥� offers potential to accelerate and simplify trade flows, to support greater efficiency in foreign exchange settlement and to facilitate the growth of tokenised securities markets.
This connector will enable financial institutions to conduct a wide range of transactions employing CBDCs and other forms of digital tokens, while enabling these firms to make use of their existing trading and payments infrastructure.
Swift indicates that the lack of interoperability between tokenisation platforms has presented an obstacle to the growth of tokenisation. However, results from this second phase of sandbox testing indicated that Swift鈥檚 solution could link multiple asset and cash networks and facilitate atomic delivery-versus-payment (DvP) settlement across those platforms.
The testing also confirmed that the connector could play a role in foreign exchange transactions, says the Brussels-based financial messaging network. Working with CLS, the Swift connector was found to be interoperable with the existing market infrastructure, facilitating FX netting and settlement employing CBDCs.
This second testing phase has extended the project coverage to include a more complex set of use cases, employing Swift鈥檚 solution to connect and support transactions across simulated digital trade, tokenised assets and foreign exchange networks. This involved testing of more than 750 simulated transactions.
The sandbox programme has included financial institutions from around the globe, including central banks and monetary authorities from countries including Australia, the Czech Republic, France, Germany, Singapore, Taiwan and Thailand.
Swift鈥檚 chief innovation officer Tom Zschach says: 鈥淪wift is a community 鈥� a convener of and for our industry. [We have] been able to facilitate these critical innovation experiments and show that institutions can continue to use much of their existing infrastructure alongside new, innovative technologies.
鈥淔ragmentation 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.鈥�
Lewis Sun, HSBC鈥檚 global head of domestic and emerging payments, Global Payments Solutions says: 鈥淭he ability to interlink emerging and existing market infrastructures is essential to realising the potential benefits brought on by tokenisation and CBDCs.
鈥淗SBC [will] continue the collaboration with Swift and other industry peers to incubate an open, inclusive and technology-agnostic model that allows for more efficient payment-versus-payment, delivery-versus-payment, and trade settlement across different networks.鈥�
CLS鈥� global head of public policy Dirk Bullmann, adds: 鈥淥ur collaboration with Swift and other key industry players demonstrates our commitment to exploring innovative technologies that reduce risk and increase efficiency while also meeting high standards of resilience.
As the leading provider of FX settlement services, CLS鈥� participation in the Swift sandbox allowed us to jointly gain a better understanding of how netting and settlement of cross-currency payments could be designed in a CBDC world.鈥�
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