SWIFT conducts first ever successful CBDC interconnect trial

Global bank messaging network SWIFT, which many years ago was afraid that it was going to be made obsolete thanks to technologies such as blockchain, is planning a new platform in the next one to two years to connect the wave of Central Bank Digital Currencies (CBDC) now in development to the existing finance system, it has told Reuters.

The move, which would be one of the most significant yet for the nascent CBDC ecosystem given SWIFT's key role in global banking, is likely to be fine-tuned to when the first major ones are launched.

The Future of banking and Payments, by keynote Matthew Griffin

Around 90 percent of the world's central banks are now exploring digital versions of their currencies as most don't want to be left behind by bitcoin and other cryptocurrencies, but that said they’re also grappling with technological complexities.

SWIFT's head of innovation, Nick Kerigan, said its latest trial, which took 6 months and involved a 38-member group of central banks, commercial banks and settlement platforms, had been one of the largest global collaborations on CBDCs and "tokenised" assets to date.

It focused on ensuring different countries' CBDCs can all be used together even if built on different underlying technologies, or "protocols", thereby reducing payment system fragmentation risks.

It also showed they could be used in highly complex trade or foreign exchange payments and potentially be automated so to both speed up and lower the costs of the processes.

Kerigan said the results, which had also proven banks could use their existing infrastructure, had been widely regarded as a success by those who took part and given SWIFT a timeline to work to.

"We are looking at a roadmap to productize (launch as a product) in the next 12-24 months," Kerigan said in an interview. "It's moving out of experimental stage towards something that is becoming a reality."

Although the timeframe could still shift if major economy CBDC launches get delayed, getting out the blocks for when they do would be a major boost for maintaining SWIFT's incumbent dominance in the bank-to-bank plumbing network.

Countries such as the Bahamas, Nigeria and Jamaica already have CBDCs up and running. China is well advanced with real-life trials of an E-Yuan. The European Central Bank has digital euro one underway too, while the Bank for International Settlements, the global central bank umbrella group, is running multiple cross-border trials.

SWIFT's main advantage though is that its existing network is already usable in over 200 countries and connects more than 11,500 banks and funds who use it to send trillions of dollars every day.

The firm has gone from being virtually unknown outside banking circles to a household name since 2022 when it cut most of Russia's banks off from its network as part of the West's sanctions for the invasion of Ukraine.

Kerigan said that kind of move could still happen in a new CBDC system, but doubted whether it would stop countries from joining one. Its latest trial involved central banks from Germany, France, Australia, Singapore, Czech Republic and Thailand as well as a number that requested to remain anonymous.

A raft of heavyweight commercial banks including HSBC, Citibank, Deutsche Bank, Societe Generale, Standard Chartered and the CLS FX settlement platform all took part too, as did at least two banks from China.

The idea is that once the interlink solution is scaled-up, banks would have one main global connection point able to handle digital asset payments, rather than thousands if they were to set up an individual one with every counterparty.

As well as the advance towards CBDCs, Kerigan pointed to a forecast from Boston Consulting Group (BCG) that by 2030 around $17 trillion worth of assets could be "tokenised" - a process where assets like stocks and bonds are transformed into digital chips that can then be issued and traded in real-time.

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