SWIFT will work on linking different CBDC systems to ease the difficulty in cross-border transactions since the digital currencies are mainly focused on resolving domestic uses.
The global provider of secure financial messaging services, SWIFT, is testing to interlink multiple domestic-based emerging CBDC networks for cross-border transactions. The Belgium-based network, which enables financial institutions to communicate with each other for global payments, has tapped the French information technology services and consulting company Capgemini for the move.
CBDCs’ Interoperability
According to the official blog post, SWIFT stated that the cross-border use of CBDCs may have been a blind spot for this type of digital currency since it is developed mainly for implementing domestic policies. SWIFT’s Chief Innovation Officer Thomas Zschach, believes different systems of CBDCs need to work together for “frictionless” cross-border transactions, and SWIFT has a role in this.
“Facilitating interoperability and interlinking between different CBDCs being developed around the world will be critical if we are to fully realise their potential. Today, the global CBDC ecosystem risks becoming fragmented with numerous central banks developing their own digital currencies based on different technologies, standards and protocols.”
SWIFT’s Head of Innovation Nick Kerigan noted that as CBDCs will be increasingly perceived as “a new form of fiat currencies,” multiple such platforms paralleling the traditional payment system will be developed to integrate with the traditional financial infrastructure.
In this case, SWIFT, whose technology solutions can be accessed by more than 11,000 financial institutions in over 200 countries, aims to potentially enable “a highly scalable and easily integrated solution” for international payments via CBDCs.
The post also outlined the deployment of a gateway on a domestic central bank digital currency network as the main feature of this experiment:
“The gateway will intercept cross-border transactions on the network, translate them, and send them to the SWIFT platform for onward transmission to another CBDC network or established payment system.”
By collaborating with Capgemini, the post revealed that SWIFT will be focused on addressing three use cases – CBDC to CBDC, fiat to CBDC, and CBDC to fiat. The giant has also looked beyond CBDCs, attempting to enable interoperability between other digital assets and currencies.
Under the Spotlight Amid Sanctions Against Russia
SWIFT – the Society for Worldwide Interbank Financial Telecommunication – is the world’s largest international financial messaging system. After the West agreed to exclude Russian banks from it, financial institutions in the region have faced troubles staying afloat.
Kicking Russia out of SWIFT was intended to cut out the country’s ability to liquidate assets and transfer funds across institutions that are members of the system. However, in a bid to isolate and punish the nation, the move caused criticism derived from countries like Russia and China – which planned to migrate to their own messaging systems to counter the impact of sanctions.