Swift announced that three central banks are now beta testing its Swift CBDC connector solution, which enables the use of central bank digital currency (CBDC) for cross border payments. Two of the named central banks are the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan. They are integrating the solution with their infrastructure to test it.
The Swift offering is consistent with other Swift solutions in that it is based on messaging. This contrasts with most DLT solutions that combine the message with the money movement. A key reason for continuing to use messaging is to ensure interoperability with legacy payment systems.
Apart from the CBDC connector solution, Swift is also running a second phase of its CBDC sandbox which has expanded from 18 organizations to 30. It includes the central banks of Australia, Germany, Hong Kong, and Thailand as well as FX central counterparty CLS.
The central banks of France and Singapore have dropped out of the latest iteration of the sandbox. The two central banks are working with the Swiss National Bank on other cross border CBDC solutions.
Current sandbox experiments include trigger-based payments for DLT solutions, foreign exchange, delivery versus payment and liquidity saving mechanisms.
“The financial community has already recognised the strong potential of our CBDC innovations for preventing digital islands while securely bridging the payment systems of today and the future,” said Tom Zschach, Chief Innovation Officer at Swift.
Other cross border CBDC projects
Meanwhile, there are a dizzying number of CBDC projects on the go, with cross border payments as a key focus. Two of the participants in the Swift sandbox – HKMA and the Bank of Thailand – are founding participants in another cross border CBDC solution, Project MBridge. Unlike many other cross border CBDC experiments, MBridge is proceeding to production.
As Swift has been forced to to become a central player in sanctions enforcement, countries that fear future sanctions, such as China, are keen for alternative cross border payment systems. And MBridge could be a major one.
Swift is also involved in other interoperability solutions, including trialing digital asset tokenization and integration with multiple public blockchains.