SWIFT unveils plan for central bank digital currency network

LONDON, Oct 5 (Reuters) – Financial messaging system SWIFT unveiled its plan for a global central bank digital currency (CBDC) network after an 8-month experiment in different technologies and currencies.

The trial, which involved the national central banks of France and Germany, as well as global lenders such as HSBC, Standard Chartered and UBS, looked at how CBDCs could be used internationally and even converted into cash if needed .

About 90% of the world’s central banks are now using, testing or looking into CBDCs. Most do not want to be left behind by bitcoin and other cryptocurrencies, but struggle with the technological complexity.

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SWIFT’s chief innovation officer, Nick Kerigan, said its trial, which will be followed by more advanced tests next year, resembled a bicycle wheel where a total of 14 central and commercial banks connect like spokes to its main hub.

The idea is that when scaled up, banks may only need one master global connection, instead of thousands if they were to create connections to each one separately.

“We think the number of connections required is much smaller,” Kerrigan said. “Therefore, you are likely to have fewer breaks (in the chain) and you are likely to achieve greater efficiency.”

The test also looked at different underlying CBDC technologies known as Distributed Ledger Technologies. The use of various technologies has also been raised as a potential barrier to rapid global adoption.

It also ran a separate trial with Citi, clearing house Clearstream and Northern Trust into ‘tokenized’ assets – traditional assets such as stocks and bonds turned into digital tokens that can then be issued and traded in real time.

Some countries such as the Bahamas and Nigeria already have CBDCs in operation. China is well advanced with real-world testing of an e-yuan, while the central bank’s umbrella group, the Bank for International Settlements, has also conducted cross-border testing.

However, SWIFT’s main advantage 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 firm has gone from virtually unknown outside banking circles to a household name this year after it cut most Russian banks from its network as part of Western sanctions over the country’s invasion of Ukraine.

Kerigan said this kind of movement could also happen in a new CBDC system, but he doubted whether it would prevent countries from joining it.

“Ultimately what most central banks are looking to do is provide us with a CBDC for the people, businesses and organizations in their jurisdiction.”

“So a solution that is fast and efficient and that gets access to as many countries as possible would seem attractive.”

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Report by Marc Jones. Edited by Ana Nicolaci da Costa

Our Standards: The Thomson Reuters Trust Principles.

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