SWIFT Prepares Plan For CBDC Network

SWIFT, the global financial messaging system, had prepared a plan for a global CBDC network. The announcement comes after the company spent 8 months experimenting with different currencies and technologies.

The experiment included the German and French national central banks, along with international lenders like UBS, Standard Chartered, and HSBC. It looked at the international use cases for CBDCs and whether they could be converted into local fiat currency.

Much of the World Looking into CBDCs

Approximately 90 percent of the world’s central banks are looking into CBDCs. This can involve laying out plans for future uses, conducting trials, or entering the using stage. This is mainly to stay ahead of Bitcoin and other major cryptocurrencies. However, they are facing tech-related complexities.

The head of innovation at SWIFT, Nick Kerigan, said that the trial will be followed by further testing. Explaining how the trial worked, he compared it to a bicycle wheel, in which 14 commercial and central banks connected to the main center like spokes in a tire. The analogy implies that at a bigger scale, banks will only need a single global connection as opposed to thousands of individual connections between different counterparts.

Kerigan elaborated that their trials showed the possibility of needing fewer connections. This leads to fewer breaks in the chain and consequently, higher efficiency.

SWIFT Trial Tests Distributed Ledger Technologies

The trial also looked at the potential of Distributed Ledger Technologies, which is an underlying technology for the application of CBDCs. However, analysts have pointed to the need for different systems as a hurdle on the road toward global adoption. Another trial involving Northern Trust and Clearstream looked at the potential of tokenized assets. These are assets such as bonds and stocks transformed into digital tokens users can trade.

Numerous Countries Set Up CBDC System

In some countries such as Nigeria and the Bahamas, CBDC systems are already in place. Similarly, China is conducting trials with the e-yuan and the Bank for International Settlements is carrying out trials across borders. The main advantage of SWIFT, however, is that its current network is already in place across 200 countries, acting as the main hub that connects over 11,500 banks.

This year, SWIFT cut off most Russian banks from its network after the country was sanctioned by the West for invading Ukraine. It’s likely that something like this can also occur in a CBDC system, but it may not necessarily prevent countries from joining one.

Hence, most central banks around the world are looking to come up with a CBDC solution that serves the people and businesses in a region. In this scenario, an efficient option that can get access to numerous countries would be the most viable one.