SWIFT, the renowned bank messaging network, has taken significant strides toward achieving central bank digital currency (CBDC) interoperability by enlisting the participation of three central banks in its beta phase. Additionally, the company has entered a new stage of sandbox testing, as announced on September 13.
The Hong Kong Monetary Authority, the Central Bank of Kazakhstan, and an undisclosed central bank have seamlessly integrated their infrastructure with SWIFT’s “CBDC connector solution” for direct testing purposes, marking a pivotal development in the journey toward CBDC integration.
The initial phase of sandbox testing commenced in March and featured an impressive lineup of over 18 participants, including esteemed institutions such as the Royal Bank of Canada, Banque de France, Société Générale, BNP Paribas, Monetary Authority of Singapore, HSBC, Deutsche Bundesbank, and NatWest. During this period, the sandbox facilitated more than 5,000 transactions over the course of 12 weeks. Now, with the inclusion of new participants, the total number has surpassed 30.
SWIFT has been actively involved in several CBDC-related projects, including its collaboration with the New York Federal Reserve Bank on a wholesale CBDC initiative utilizing a regulated liability network. While SWIFT has traditionally been a key player connecting over 11,500 financial institutions worldwide, the emergence of CBDCs poses an intriguing challenge as they have the potential to compete with SWIFT in various scenarios. The CBDC bridging projects supported by the Bank for International Settlements serve as examples of this competitive dynamic, fostering innovation in the financial landscape.
In August, SWIFT disclosed that an impressive 89% of the transactions it handles are processed within an hour, surpassing the G20’s target of achieving 75% one-hour settlements by 2027. Furthermore, a substantial 84% of transactions on the network are conducted directly or involve a single intermediary. However, in practical terms, only 60% of wholesale payments are concluded within an hour, owing to factors such as regulatory controls, business hours, and batch processing.
The participation of central banks in SWIFT’s CBDC interoperability project signals a pivotal step forward in the evolving landscape of digital currencies and cross-border financial transactions. As SWIFT continues to refine its capabilities and expand its sandbox testing, the financial industry anticipates further advancements in the realm of CBDCs and blockchain technology.
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