Financial messaging system SWIFT has set out its blueprint for a global central bank digital currency (CBDC) network after an 8-month experiment on different currencies and technologies.
The trial, which for the last month has involved both Germany and France’s national central banks along with global lenders like Standard Chartered, HSBC, and UBS, looked at how CBDCs could be used internationally and even exchanged into fiat money if necessary.
About 90% of global central banks are currently using, looking into, or trialing CBDCs. Many don’t want to be left behind by bitcoin and other cryptocurrencies, but are battling with technological complexities.
SWIFT’s head of innovation Nick Kerigan said its trial, which will be accompanied by more advanced testing over the next year, mirrored a bicycle wheel where 14 central and commercial banks in total connected spoke-like into its main hub.
The idea is that once scaled up, banks may require only one main global connection, instead of thousands if they were to establish connections with each counterpart separately.
“We believe that the number of connections needed is much fewer. Therefore, you are likely to have fewer breaks (in the chain) and you are likely to achieve greater efficiency.”
CBDCs are being seen as progress as they could successfully be programmed to satisfy both governments’ and individuals’ specific needs, although they have also posed issues regarding privacy and surveillance.
SWIFT’s trial also put to the test different underlying CBDC technologies known as Distributed Ledger Technologies. The use of multiple technologies has also been tabled as a possible challenge for rapid global adoption.
There was a different trial too conducted with Citi, clearing house Clearstream, and Northern Trust on ‘tokenized’ assets – traditional assets like bonds and stocks converted into digital tokens that can then be traded and issued in real-time.
Several countries such as Nigeria and the Bahamas already have CBDCs up and running. China is greatly advanced with real-life trials of an e-yuan, while the Bank for International Settlements, the central bank umbrella group, has also been performing cross-border trials.
SWIFT’s major advantage though is that its current network is already functional in more than 200 countries and connects over 11,500 banks and funds.
The Belgium-based firm has moved from being virtually unheard-of outside banking circles to a household name this year after it excluded most of Russia’s banks from its network as part of the West’s sanctions for Russia’s invasion of Ukraine.
Kerigan said that kind of move could also occur in a new CBDC system, but was uncertain whether it would hinder countries from joining one.
“Ultimately what most central banks are looking to do is to provide us with a CBDC for the people, the businesses, and the organizations in their jurisdiction.”
“So a solution that’s fast and efficient and that gains access to as many other countries as possible would seem to be an attractive one.”