Global banking information network SWIFT told Reuters it is planning to build a new platform in the next one to two years to connect the wave of central bank digital currencies currently under development to the existing financial system.

Given SWIFT’s key role in the global banking industry, this move will be one of the most important to date for the emerging CBDC ecosystem, and will likely be fine-tuned as the first major initiatives are launched.

About 90% of the world’s central banks are currently exploring digital versions of their currencies. Most people don’t want to be left behind by Bitcoin and other cryptocurrencies, but are grappling with the complexities of the technology.

Nick Kerigan, SWIFT’s head of innovation, said that its latest trial, which lasted six months and involved a 38-member group composed of central banks, commercial banks and settlement platforms, was one of the largest global collaborations on CBDC and “tokenized” assets. date.

It focuses on ensuring that CBDCs from different countries can be used together, even if they are built on different underlying technologies or “protocols”, thereby reducing the risk of payment system fragmentation.

It also shows that they can be used for highly complex trade or foreign exchange payments and could potentially be automated, thus speeding up the process and reducing process costs.

Kerigan said the findings also demonstrated that banks can leverage their existing infrastructure, with participants generally viewing the results as a success and providing SWIFT with a timetable for its work.

“We’re looking at a roadmap for productization (launching as a product) over the next 12-24 months,” Kerrigan said in an interview. “It’s moving from the experimental stage to reality.”

While the timeframe could still change if the rollout of CBDCs in major economies is delayed, getting out of the way at launch would be a significant boost to maintaining SWIFT’s existing dominance in the interbank conduit network.

Countries such as the Bahamas, Nigeria and Jamaica already have CBDCs up and running. China has made great progress in real-world trials of electronic yuan. The European Central Bank is also working on a digital euro, while the Bank for International Settlements, the global umbrella group for central banks, is also conducting a number of cross-border trials.

SWIFT’s main advantage, however, is that its existing network is used in more than 200 countries and connects more than 11,500 banks and funds that send trillions of dollars through the network every day.

Extensible options

The company went from virtually unknown outside banking circles to a household name since 2022, when it cut off most Russian banks from its network as part of Western sanctions over the invasion of Ukraine.

Kerigan said such a move could still happen in a new CBDC system, but questioned whether it would prevent countries from joining the system.

The latest trials involve central banks in Germany, France, Australia, Singapore, the Czech Republic and Thailand, as well as some who requested anonymity.

Many heavyweight commercial banks such as HSBC, Citibank, Deutsche Bank, Société Générale, Standard Chartered Bank and CLS foreign exchange settlement platform are also involved, as are at least two Chinese banks.

The idea is that once interconnected solutions scale, banks will have one main global connection point capable of processing digital asset payments, rather than thousands of connections if banks had a separate connection point with each counterparty point.

In addition to CBDC progress, Kerigan noted that the Boston Consulting Group (BCG) predicts that approximately $16 trillion worth of assets could be “tokenized” by 2030 — a process in which stocks and bonds, among others Assets will be converted into digital chips that can then be issued and traded in real time.

“If we can plug any number of networks (into the SWIFT system), it becomes a more scalable option for the industry,” he said.

© Thomson Reuters 2024

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