SWIFT (Society for Worldwide Interbank Financial Telecommunication) recently disclosed that three central banks are currently conducting pilot programs for central bank digital currencies (CBDCs).
According to SWIFT’s announcement, they have ventured into the next phase, focusing on the interoperability of CBDCs. The current pilot involves three central banks evaluating new systems designed to connect CBDCs. Additionally, 30 financial institutions are delving deeper into potential applications of this digital currency.
While SWIFT identified the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan as two of the central banks actively engaging in the integration of this new solution for direct trials, the third central bank involved in the pilot was not named.
Tom Zschach, the Chief Innovation Officer at SWIFT, emphasized the importance of interoperability. He stated that the objective is to ensure digital currencies coexist harmoniously with current fiat-based currencies and payment structures. Highlighting the financial sector’s acknowledgment of the vast potential of their CBDC initiatives, Zschach believes this next phase of trials and research will fine-tune the solution, ensuring it’s efficient and scalable.
Given that approximately 130 nations are investigating CBDC technology, SWIFT predicts potential fragmentation challenges when these CBDCs are fully operational. This anticipated fragmentation underscores why interoperability is at the forefront of SWIFT’s concerns.
SWIFT’s innovative “connector” technology has already demonstrated the feasibility of facilitating transactions across diverse blockchain-based CBDC platforms, even those built on different frameworks. To address potential fragmentation, SWIFT has prioritized interoperability for digital currencies and tokenized assets, aiming to ensure their smooth expansion when integrated into the financial landscape.
SWIFT’s foray into CBDCs began over a year and a half ago. During the initial phase of experiments and sandbox testing, they simulated almost 5,000 transactions across two distinct blockchain networks and with traditional fiat-based payment systems. Feedback from central and commercial banks affirmed that SWIFT’s connector facilitated smooth CBDC exchanges, irrespective of the platform they were built on.