SWIFT testing decentralized technologies for CBDC interconnection

With the adoption of CBDC on the rise, SWIFT is in collaboration with Capgemini to conduct new experiments on its usage.


As the usage of digital currency is on the rise and various countries are developing their own Central Bank Digital Currency (CBDC), the Society for Worldwide Interbank Financial Telecommunication (SWIFT) is providing execution of financial transactions and payments between banks worldwide and it’s now testing on how to interconnect domestic CBDCs with Capgemini.

SWIFT wants to use the new technology for seamless cross-border payments involving digital currencies.

This comes at the time when SWIFT is facing huge challenges from many crypto projects that are eyeing the space with their blockchain technology, which can remit money within minutes, as compared to the SWIFT system which takes days to make cross-border payments.

As crypto adoption is increasing, there are many use case projects like Ripple (XRP), Stellar (XLM), and others eyeing cross-border remittances.  

Interest in CBDCs is clearly on a rise after a new report from the Bank for International Settlements (BIS) said that nine out of 10 central banks are now exploring CBDCs – covering economies that account for more than 90% of global GDP.

Many of these central banks are in the advanced stages of launching their CBDC with nine countries already having their own digital currency namely Nigeria and The Bahamas.

Speaking on this, SWIFT Chief Innovation Officer Thomas Zschach said, 

“Facilitating interoperability and interlinking between different CBDCs being developed around the world will be critical if we are to fully realize their potential.” 

Scaling across borders

Most banks want to develop a CBDC that will act as a digital version of fiat, but many banks want it to become a default currency for cross-border payments that can save a lot of money in remittance commissions.

The SWIFT Information Officer also stressed that the global CBDC ecosystem is at risk, as every central bank is developing its own digital currencies that have different technologies, standards, and protocols.

Emphasizing standardization, SWIFT Head of Innovation Nick Kerigan said: 

“This is not good, as there will be various digital islands and instead of supporting business. This can hamper the ability of businesses and consumers to become a frictionless cross-border payments settlement system suing CBDCs”. 

It is to be noted that last year, SWIFT conducted a first set of CBDC experiments that successfully demonstrated a cross-border transaction between one entity on a distributed ledger technology (DLT) based CBDC network and a second running on an established real-time gross settlement (RTGS) system.

Taking this to the next level, SWIFF has now collaborated with Capgemini where they are testing how they can interlink the multiple domestic-based CBDC networks emerging worldwide to make cross-border payments with CBDCs more seamless and frictionless.

Commenting on this development, Capgemini Chief Technology & Innovation Officer, Financial Services Sudhir Pai said that “navigating decentralization is a complex thing as there are many technologies, operating models, and policy considerations. With our well-defined taxonomy, it has helped accelerate our efforts to build CBDC interlinks with SWIFT”. 

Challenges in CBDC adoption

With a wide range of challenges from operating models, technology, and others awaiting the central banks in the adoption of CBDC, if this is not addressed initially, wider adoption of CDBCs may not be so easy, Kerigan added.

Adding further, Kerigan said, “CBDCs are new forms of fiat currencies that have the potential to enable new or better payment capabilities.”

“But they are not necessarily a replacement to traditional payment infrastructures and processes. CBDC and traditional infrastructures will need to co-exist and work together for some time to come,”

Kerigan underlined.

In order to scale, CBDC needs to adopt the same technology, as some CBDCs are built on centralized protocols, while some are based on DLT, so there can be a challenge of interoperability.

Finding solutions for interoperability

With the experience SWIFT has in international payments, it is working to solve interoperability between CBDCs and existing payments systems, using banks communicating via established messaging.

The testing of Capgemini has gone further to a network level, where CBDC platforms, regardless of technology with existing payments systems, can be connected via the SWIFT platform. 

SWIFT is exploring whether interlinking could offer a highly scalable and easily integrated solution to making CBDC networks ‘cross-border payments ready.

With this technology for CBDCs, SWIFT is aiming to launch a solution that can be accessible to more than 11,000 financial institutions in over 200 countries.

“If the experiments are successful, it will demonstrate that SWIFT has the capability and technical components to interlink different networks. And it could enable us to help central banks make their own CBDC networks cross-border payment ready,

Kerigan added. 

SWIFT’s proof of concept with Capgemini ensures that, regardless of the platform used (Corda and Quorum are adopted in the experimentation), it provides efficient orchestration of transactions and can address three use cases – CBDC to CBDC, fiat to CBDC, and CBDC to fiat. 

Looking at the fierce competition from cryptocurrencies, SWIFT has to work towards adopting new technologies that can make them a player in the fastest-changing cross-border payment business.

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