SWIFT lays out a master plan for the central bank’s digital currency network

LONDON (Reuters) – Financial messaging system SWIFT has outlined its plan for a global central bank digital currency (CBDC) network following an 8-month experiment across different technologies and currencies.

The trial, which involved the French and German national central banks as well as global lenders like HSBC, Standard Chartered and UBS, looked at how CBDCs could be used internationally and even converted into fiat currency if needed.

Around 90% of central banks around the world are currently using, testing or studying CBDCs. Most don’t want to be left behind by bitcoin and other cryptocurrencies, but grapple with technological complexities.

SWIFT’s chief innovation officer, Nick Kerigan, said his trial, which will be followed by more advanced tests over the next year, resembled a bicycle wheel where a total of 14 central and commercial banks were connected as spokes in its main hub.

The idea is that once at scale, banks may only need one main global connection, rather than thousands if they had to establish connections with each counterparty individually.

“We think the number of connections needed is much lower,” Kerigan said. “Therefore, you’re likely to have fewer breaks (in the chain) and you’re likely to get more efficiency.”

The trial also tested different underlying CBDC technologies known as Distributed Ledger Technologies. The use of various technologies was also mentioned as a potential barrier to rapid global adoption.

A separate trial was also conducted alongside Citi, clearinghouse Clearstream and Northern Trust on “tokenized” assets – traditional assets like stocks and bonds turned into digital tokens that can then be issued and traded online. real time.

Some countries like the Bahamas and Nigeria already have CBDCs in place and functioning. China is well advanced with actual trials of an e-yuan, while the central bank’s apex group, the Bank for International Settlements, has also conducted cross-border trials.

The main advantage of SWIFT is that its existing network is already usable in more than 200 countries and connects more than 11,500 banks and funds.

The Belgium-based company has gone from virtually unknown outside banking circles to a household name this year after cutting most Russian banks from its network as part of Western sanctions over Ukraine’s invasion of Ukraine. the country.

Kerigan said that kind of movement could also happen in a new CBDC system, but doubted it would stop countries from joining one.

“At the end of the day, what most central banks seek to do is provide us with a CBDC for people, businesses and organizations in their jurisdiction.”

“So a solution that is quick and efficient and gives access to as many other countries as possible seems like an attractive solution.”

(Reporting by Marc Jones; Editing by Ana Nicolaci da Costa)

Copyright 2022 Thomson Reuters.

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