Yesterday SWIFT in association with Accenture published a paper about central bank digital currencies (CBDC). A key takeaway is that it wants to continue and extend its current role and be a trusted intermediary for cross-border CBDC payments.
“We look forward to actively supporting our community on issues related to CBDCs and driving responsible innovation aligned with our strategic vision for instant end-to-end transactions,” said Thomas Zschach, Chief Innovation Officer, SWIFT.
In November 2020, SWIFT engaged Accenture to explore the CBDC topic. Additionally, it has taken an interest in the broader digital asset ecosystem.
Standing back, one can see that the Bank for International Settlements (BIS) is already exploring this area in depth, including for cross border payments. However, the BIS focuses on central banks, whereas SWIFT’s realm is more at the commercial bank and payments level. As SWIFT points out, currently, about 80% of circulating money is commercial bank money. CBDC systems are likely to be two-tiered, with central banks distributing a digital currency via banks and payment providers similar to physical cash. Hence SWIFT sees a role for itself at the payment level as a cooperative organization to convene CBDC exploration through partnerships.
Focus areas and experiments
There are four interest areas that SWIFT plans to explore, with the initial focus on providing cross network support. In other words, it aims to enable interoperability between CBDC and non-CBDC payment networks as well as digital asset networks. This includes enabling transfers between real-time gross settlement (RTGS) systems and CBDC networks as part of a CBDC issuance and redemption process. Back in 2019, Accenture collaborated with SAP to integrate token-based payments with an RTGS platform.
SWIFT’s first experiment involves orchestrating a cross border transaction between a traditional wholesale RTGS payment system and DLT-based CBDC platform.
The other experiment involves transactions between two separate CBDCs, one uses Quorum enterprise blockchain technology and the other uses Corda. The cross blockchain CBDC exchange uses hash time-locked smart contracts and doesn’t need SWIFT’s involvement. However, the payment involves correspondent banks where SWIFT comes into play.
Future CBDC exploration
It’s expected that payment providers will provide innovative applications on top of CBDCs, such as programmable money. Hence a second future area that SWIFT plans to explore is providing application offerings.
Thirdly it wants to provide critical network services, including identity, transaction confirmation or notary services, or defining token structure.
And finally, it’s considering providing a “Distributed Ledger Technology (DLT) network upon which CBDCs are built. While changes would be required to the SWIFT platform and infrastructure to act as a CBDC Network(s) as a service, we will consider and evaluate this potential role, as the CBDC ecosystem evolves,” says the paper.
Today SWIFT provides a messaging platform. With CBDC, particularly a tokenized one, the transaction and the currency are integral. Hence SWIFT concludes that it plans to explore its role both for messaging with CBDC payments and “as a carrier of actual CBDC value in whatever form it is issued.”