Swift "Connecting the Digital Islands" Upgraded Again! Three Central Banks Testing CBDC Interoperability Solution

The global cross-border payment messaging system leader Swift has been actively embracing blockchain technology in recent years, aiming to "connect digital islands" and facilitate seamless interoperability for Central Bank Digital Currencies (CBDCs) across different platforms. Swift has stated that three central banks are currently testing its CBDC interoperability solution.

Why is Swift so important? By embracing blockchain technology, Swift provides a single point of access for financial institutions to transfer tokenized assets.

Swift's Digital Island Connection Initiative

According to data from the Atlantic Council, 98% of the GDP of 130 countries are currently exploring Central Bank Digital Currencies (CBDCs). Among the G20 countries, 19 are in advanced stages of CBDC development, with 9 already in pilot phases. However, this development could lead to a fragmented cross-border landscape as most countries are focusing on domestic use.

Swift's "Digital Island Connection" aims to address this issue by collaborating with multiple partners to integrate distributed ledger and blockchain technology with traditional financial networks, facilitating seamless cross-border transactions between different CBDC platforms.

In March, Swift announced the results of the first phase of its sandbox testing, showcasing with 18 central banks and commercial banks that even CBDCs built on different platforms can seamlessly interoperate through this solution.

For more information, see: Connecting the Digital Islands, SWIFT Leading the Way in Linking Financial Institutions and CBDC Platforms

Second Phase Testing Expands Scope

Swift has now announced entering Beta testing, with three central banks including the Hong Kong Monetary Authority (HKMA) and the Central Bank of Kazakhstan integrating the solution into their CBDC infrastructure.

In the second phase of sandbox testing, commercial banks, central banks, and financial market infrastructures are exploring more use cases, including trigger-based payments for digital trade platforms, forex models, cash-on-delivery, and liquidity-saving mechanisms. Participants include over 30 institutions such as the Reserve Bank of Australia, Deutsche Bundesbank, the Bank of Germany, the Hong Kong Monetary Authority, the Bank of Thailand, and others.

Tom Zschach, Swift's Head of Innovation, stated:

Our focus is on interoperability - ensuring that new digital currencies can coexist seamlessly with each other and with today's fiat currencies and payment systems. The financial industry has recognized the enormous potential of our CBDC innovation in preventing digital islands and securely connecting current and future payment systems. The next stage of testing and exploration will help us further refine the solution to ensure its effectiveness and large-scale operation.