Swift has announced that its recent round of sandbox testing has demonstrated that its central bank digital currency (CBDC) interlinking technology can effectively enable financial institutions to perform a variety of transactions using CBDCs and other digital tokens, seamlessly integrating them into their operations.
The messaging cooperative is focused on ensuring interoperability among digital currencies and tokenized assets to address the potential fragmentation risks posed by varying technologies, standards, and protocols.
Last year, Swift conducted sandbox testing that illustrated how its connector technology could facilitate cross-border transfers and allow CBDCs on different networks to connect with each other as well as with fiat currencies.
Now, in a second phase of testing, Swift has partnered with 38 institutions, including commercial banks, central banks, and financial market infrastructures, to explore more complex use cases.
During these experiments, Swift’s technology was employed to coordinate transactions across simulated digital trade, tokenized asset, and FX networks, alongside CBDCs for payments, resulting in over 750 transactions being completed.
Tom Zschach, Chief Innovation Officer at Swift, emphasized that fragmentation poses a significant challenge for the industry, highlighting the necessity of interoperability between networks to address this issue and enable new technologies to scale effectively.
The testing results suggest that Swift’s CBDC connector could simplify and accelerate trade flows, stimulate growth in tokenized securities markets, and facilitate efficient foreign exchange (FX) settlement, all while allowing financial institutions to leverage their existing infrastructure.
In the realm of digital trade, the experiments revealed effective interoperability between various digital networks and trade platforms, with Swift’s solution enabling atomic trade payments—simultaneous payments carried out alongside asset transfers rather than in a sequential manner.
By utilizing smart contracts and event-driven programming, the automation of payments was made possible once specific conditions were fulfilled, indicating that trade flows could potentially be automated around the clock.
The experiments also highlighted the connector’s role in the foreign exchange market. Collaborating closely with CLS, the connector proved to be compatible with existing market infrastructure, facilitating FX netting and settlement through CBDCs.
Sabib Behzad, head of digital assets and currencies transformation at Deutsche Bank, remarked that interoperability between distributed ledger technology (DLT) networks is crucial for establishing efficient connectivity among CBDCs and other networks, helping to eliminate silos.
He noted that testing Swift’s solution across various use cases, such as Delivery versus Payment (DvP) and FX involvement with 38 commercial and central banks represents a significant advancement toward overcoming fragmentation and ensuring seamless transactions.