Hong Kong and Kazakhstan Pilot SWIFT’s CBDC Solution
Central bank digital currency (CBDC) development globally is unrelenting, with the latest iteration of that involving global financial messaging network SWIFT.
The global member-owned cooperative recently disclosed that three central banks are currently participating in beta-testing of this revolutionary solution, including the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan.
Building upon initial success
The company provided details on the initiative via a press release published to its website on Wednesday. Simultaneously, an extended consortium of over 30 financial institutions is embarking on sandbox experiments to explore a multitude of potential use cases.
The impetus behind SWIFT’s commitment to CBDC interoperability grew stronger after a successful round of sandbox testing. Participants in the initial phase quickly recognized the potential and intrinsic value of SWIFT’s solution.
Building on this success, the beta version of SWIFT’s CBDC connector solution is now being integrated into the infrastructure of three central banks and monetary authorities.
Second phase testing
In tandem with the beta testing, SWIFT has inaugurated a second phase of sandbox experiments, drawing in a consortium of commercial banks, central banks, and financial market infrastructure providers. This phase is dedicated to exploring an array of use cases, ranging from trigger-based payments for digital trade platforms to foreign exchange models, delivery vs. payment mechanisms, and liquidity-saving techniques.
Eighteen central and commercial banks had taken part in the first phase of those sandbox experiments. Equally, the second phase has attracted a long list of entities, including the Reserve Bank of Australia, Deutsche Bundesbank, HKMA, Bank of Thailand, CLS, and others. With thirty leading global financial institutions participating in this latest testing round, that makes for a 66% increase in participation by comparison with the first phase. Their collective input and collaboration will contribute towards shaping the future landscape where CBDCs are concerned.
Tom Zschach, Chief Innovation Officer at SWIFT, commented on the use of the technology in bridging from existing systems, stating:
“The financial community has already recognized the strong potential of our CBDC innovations for preventing digital islands while securely bridging the payment systems of today and the future.”
Global hotbed of innovation
The American think tank, the Atlantic Council, has been tracking CDBC projects on a global basis. Its endeavors in that respect demonstrate the expansive efforts that are being made to develop this technology.
19 of the G20 countries are in advanced stages of CBDC development, with nine already in pilot phases. While this proliferation signifies the growing importance of CBDCs on the global stage, it also raises concerns about potential fragmentation as countries predominantly focus on domestic usage.
SWIFT has taken a proactive stance in addressing the potential challenges of a fragmented CBDC landscape. The company embarked on its CBDC journey over 18 months ago, with the initial sandbox phase simulating nearly 5,000 transactions between different blockchain networks and existing fiat-based payment systems.
