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SWIFT, the global interbank messaging system, has almost completed its latest round of experiments on cross-border central bank digital currency (CBDC) payments with the help of French IT firm Capgemini.
The study, whose results will be published “shortly”, is focused on standardisation and interoperability between domestic CBDCs, which is seen as a key step for frictionless cross-border use.
In a press statement, SWIFT said the experiments are necessary to find out how multiple CBDC platforms developed in parallel with existing traditional payment systems can work together at an international level.
In their previous CBDC experiments, conducted in 2021, SWIFT and Capegemini said they successfully demonstrated that interoperability between CBDCs and existing payments systems is possible using banks that communicate via established messaging.
Specifically, the 2021 experiments showed that the two companies could facilitate cross-border transactions between one entity on a distributed ledger-based CBDC network and another entity running on an established real-time gross settlement (RTGS) system.
In its latest experiments, SWIFT and Capgemini are going one step further, and are aiming to successfully build and deploy a gateway on a domestic CBDC network.
The gateway will intercept cross-border transactions on the network, translate them and send them to the SWIFT platform for onward transmission to another CBDC network or established payment system.
The experiments are looking at three types of cross-border flows involving CBDC payments: 1) CBDC to CBDC; 2) fiat to CBDC; and 3) CBDC to fiat.
SWIFT said the collaborative proof of concept is reusing existing bank messaging standards and authentication models, including ISO 20022 and SWIFT’s Private Key Infrastructure.
If successful, the two companies believe that the experiments could lead to a scalable solution that can be integrated into any domestic payments system, meaning that any CBDC network would become cross-border payments ready.
On a technical level, the proof of concept ensures that, regardless of the platform used, SWIFT will be able to provide efficient delivery of transactions across systems and jurisdictions.
In its statement, SWIFT noted that it and Capgemini are using private enterprise blockchains Corda and Quorom as the interlinks in their experiments.
Ultimately, the aim is to ensure that a CBDC interlinking solution can be accessed by the 11,000+ financial institutions in more than 200 countries that are connected to SWIFT.
“If the experiments are successful, it will demonstrate that SWIFT has the capability and technical components to interlink different networks,” said Nick Kerigan, head of innovation at SWIFT.
“This would help solve a huge technology and industry challenge facing CBDCs, and it could enable us to help central banks make their own CBDC networks cross-border payment ready.”
SWIFT and Capgemini said the experiments are already in their “advanced” stages, but did not set a date for when their findings will be published in full.
They added that they also plan to look beyond CBDCs to see if they can enable interoperability between other digital assets and currencies, as they become more developed and regulated globally.
Central banks rally to CBDCs
The results of SWIFT and Capgemini’s latest CBDC study will be highly anticipated, given the heightened interest in CBDC among central banks globally.
As reported by VIXIO earlier this month, a new survey from the Bank for International Settlements (BIS) has found that nine out of ten central banks are now exploring CBDCs, and more than half of them are currently developing or conducting real-word experiments with them.
Of the banks that are engaged in some form of CBDC work, 70 percent are considering a two-tier model of retail and wholesale CBDCs.
In both advanced and emerging economies, central banks are looking to wholesale CBDCs to solve long-standing pain points in cross-border payments, such as costliness, limited opening hours and lengthy transaction chains.
But in emerging economies in particular, financial stability, monetary policy implementation, and domestic payments safety and efficiency are also important motivations to pursue a wholesale CBDC.
According to SWIFT and Capgemini, there are currently nine countries using a live CBDC, including Nigeria, which launched the eNaira in 2021 and the Bahamas, whose Sand Dollar went live in 2020.
However, the biggest market to date to launch a CBDC, and the one that everyone is watching, is China. Although still in pilot phase, officials reported in November that more than 140m users have now registered for e-CNY accounts, making $9.7bn worth of transactions.
Earlier this month, as reported by the South China Morning Post, Alipay announced that it has added a button to its app that enables users to search for and download the official e-CNY wallet within its platform.
By opening an account using the same phone number associated with Alipay, users can also make purchases using e-CNY on the app.
