Has SWIFT solved the challenge of interoperability for CBDC-to-CBDC transactions?

Back in May, we reported that SWIFT was conducting experiments with Capgemini to examine how CBDCs (central bank digital currencies) and existing payment systems could be interlinked at the network level.

Yesterday, the results of these experiments were published – and according to SWIFT, the results are overwhelmingly positive.

The report, entitled “Connecting Digital Islands” outlines results from two separate experiments, which demonstrate that the SWIFT network could be used effectively to solve the issue of interoperability between CBDCs running on different DLTs (distributed ledger technology including blockchains), as well as a bridging solution between DLT and traditional financial infrastructure.

SWIFT as a bridge for CBDC to CBDC transactions

Corda and Qurom were the two DLT technologies that were used to test CBDC-to-CBDC transactions.

A host of commercial and central banks are involved in the CBDC arm of the project – including Banque de France, Deutsche Bundesbank, and HSBC.

For CBDCs, our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway, ensuring the instant and smooth flow of cross-border payments.

Tom Zschach, Chief Innovation Officer at SWIFT

Tokenized Assets

SWIFT also worked with Citi, Clearstream, Northern Trust, and SETL to demonstrate that their network could be used to bridge multiple tokenized asset platforms with several types of cash payments.

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Tokenization – the digitization of assets on blockchain – is estimated to grow to be worth 27 billion dollars by 2027.

The importance of interoperability solutions

These results come at a time when 90% of central banks are exploring the use of CBDCs.

However, there is no unified technological approach between central banks in respect of CBDC. Some central banks are experimenting with using blockchain, some are using more traditional technologies, while others are opting for a combination of the two. For this reason, it’s important that solutions exist facilitating interoperability between various blockchains, as well as interoperability between blockchains and existing financial infrastructure (as it is likely the two will continue to exist side-by-side for some time to come).

Read more about CBDCs and other potential interoperability solutions:

• SWIFT experimenting with interoperability of CBDCs and existing payment systems
• BIS test R3 and Partior Prototypes in mCBDC Bridge Project
• Visa Publishes Whitepaper Proposing “Bridge” between Stablecoins and CBDCs
• The Components of a Functioning CBDC – XRP As the Global Bridge?

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