SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is conducting CBDC-related tests for cross-border payments involving cryptocurrencies.
Interlinking Global Networks
SWIFT has undertaken this initiative to connect central bank digital currencies (CBDCs) to each other and to traditional currencies. This will be the second CBDC-related research project undertaken by SWIFT. It has partnered with French IT firm Capgemini to conduct experiments with cross-border CBDC payments. The two are working together to test different ways of connecting multiple CBDC networks, as well as ways of linking CBDC with traditional currency networks.
SWIFT’s Head of Innovation, Nick Kerigan, commented on the ongoing experiments, claiming,
“If the experiments are successful, it will demonstrate that SWIFT has the capability and technical components to interlink different networks. This would help solve a huge technology and industry challenge facing CBDCs. And it could enable us to help central banks make their own CBDC networks cross-border payment ready.”
SWIFT is a Belgian-based financial messaging network used by banks in international money transfers. Currently, it connects over 11,000 financial institutions in over 200 countries. The SWIFT system is built on certain standards, authentication models, and infrastructure that will be incorporated into the new gateway system for CBDC networks.
SWIFT Looking To Connect CBDC Networks
CBDCs are digital equivalents of actual central bank money. The rapidly booming interest in CBDC pilots could be deterred by one possible blind spot – their usage across international borders. With a profound majority of central banks worldwide keen to develop their own digital currencies, SWIFT has recognized the need of the hour to create a gateway for domestic CBDC networks to interact with the SWIFT platform for onward transmission. Kerrigan has also recognized that a lack of international networks could create fragmentation among CBDCs, leading to digital islands. He has called for the need for a system that will ensure the different CBDCs all work together harmoniously for seamless cross-border payments.
Thomas Zschach, Chief Innovation Officer at SWIFT, stated,
“Facilitating interoperability and interlinking between different CBDCs being developed around the world will be critical if we are to fully realize 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.”
While the Bank of Canada and MIT have already launched their year-long CBDC research project, the US seems to be falling behind as Treasury Secretary Janet Yellen claimed that the government was not focusing on a CBDC as of now.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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