SWIFT’s cross-border CBDC experiments show promise as participants prepare for phase 2

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The Society for Worldwide Interbank Financial Telecommunications (SWIFT) revealed that it scored considerable success in its initial experiments with central bank digital currencies (CBDCs).

The financial institution disclosed the latest development via a press release, noting “clear potential and value” with its API-based CBDC connector for cross-border transactions. The results of the 12-week study showed that CBDC could be used in settling international transactions across 200 countries.

The study involved nearly 5,000 simulated transactions involving two distributed ledgers and existing fiat-based payment platforms. Initial reports confirm conversions between CBDCs and fiat currencies were seamless during the experiments.

Over 18 banks and financial institutions participated in the sandbox, including Société Générale (NASDAQ: SCGLF), Royal Bank of Canada (NASDAQ: RY), BNP Paribas (NASDAQ: BNPQF), HSBC (NASDAQ: HSBC), NatWest (NASDAQ: NWG), and Standard Chartered (NASDAQ: SCBFF). Global central banks were not left out of the fray, as the Deutsche Bundesbank, the Monetary Authority of Singapore, and Banque de France also took part in the study.

“When it comes to CBDCs, interoperability becomes a key enabler to avoiding liquidity traps and creating a network effect,” said Stefano Favale, executive director at Intesa Sanpaolo (NASDAQ: IITSF). “We truly believe that Swift, through its experience and capabilities, is the natural market-neutral candidate to support future digital asset developments.”

Going forward, SWIFT disclosed that it would proceed with a second testing phase for the sandbox that will focus on finding new use cases for the functionality. Potential use cases that participants may be interested in exploring include conditional payments, trade finance, and securities settlements.

SWIFT stated that its push into cross-border payment functionalities for CBDC hinged upon the need to prevent a “fragmented landscape” stemming from an increased focus on domestic usage.

Cross-border payments are the new craze

The functionality for cross-border payments with CBDCs has found several proponents, including the Bank for International Settlements (BIS). Already, the BIS has completed two pilots experimenting with the functionality, with the first being Project mBridge involving the central banks of Thailand, China, the United Arab Emirates, and Hong Kong.

The most recent of the studies was Project Icebreaker involving the trio of Israel, Norway, and Sweden, which explored the use of retail CBDCs in cross-border payments. Under the experiment, the CBDCs will not exit a particular financial system; rather, foreign exchange providers will be relied upon for settlements with a preference for the lowest cost.

Both the central banks of Russia and India have hinted that there is a possibility that the digital ruble and the digital rupee could be launched with cross-border payment functionalities.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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