Connecting the digital islands, SWIFT leads the way in linking financial institutions and CBDC platforms.

SWIFT is the leader in the global cross-border payment transmission system, serving over 200 countries and regions with over 11,500 participating financial institutions, connecting a total of 4 billion accounts worldwide. As blockchain technology has matured in recent years, many have questioned the future necessity of SWIFT. However, the leader has not bowed to the changing landscape but instead embraced new technologies. In September last year, SWIFT partnered with the cryptocurrency data provider Chainlink to facilitate the transfer of tokens on the chain through SWIFT messages, enabling interbank networks to communicate in a blockchain environment. Now, after years of dedication, the "Connecting the Digital Islands" project brings good news as SWIFT collaborates with multiple partners to integrate distributed ledgers and blockchain technology with traditional financial networks, facilitating seamless cross-border transactions for different platforms' CBDC systems.

Connecting the Digital Islands Initiative

According to a report by the Atlantic Council, 114 countries are currently studying the feasibility of Central Bank Digital Currencies (CBDCs). However, the result of each country setting its own rules has led to the creation of digital islands, where CBDCs can only be used domestically, causing communication issues in cross-border transactions such as format system discrepancies. In response, the Innovation Hub under the Bank for International Settlements (BIS) has gathered central banks and regulatory authorities from various countries to launch a series of initiatives regarding CBDCs, aiming to integrate efforts globally to develop a universal platform as the basis for future CBDC development.

Meanwhile, SWIFT has taken a leading role in its own domain, releasing a whitepaper in May 2021 utilizing the mCBDC Model published by BIS to address the interoperability between CBDCs, non-CBDCs, and CBDCs from different countries. In October 2022, SWIFT further announced the successful development of a solution that allows CBDCs to move between systems based on Distributed Ledger Technology (DLT) and legal tender using existing financial infrastructure.

SWIFT conducted numerous tests within a sandbox environment involving 18 central banks and commercial banks, proving that even CBDCs built on different platforms can seamlessly connect through this method.

Related reading: BIS Icebreaker Initiative Bridges Retail CBDCs Across Borders Without Currency Exchange

Participating Members and Network

Test participants include Banque de France, Deutsche Bundesbank, Monetary Authority of Singapore, Banque de Paris, HSBC, Banco Santander, NatWest, Royal Bank of Canada, SMBC, Societe Generale, Standard Chartered, and UBS. Additionally, 4 central banks serve as observers, providing suggestions and feedback without actively participating in the sandbox.

The tests involved transactions between the Quorum and Corda blockchain networks, as well as transactions between Corda and legal tender, completing a total of 4,736 transactions over a 12-week period.

In the coming months, SWIFT will develop a test version of the payment solution for further central bank testing. The second phase of sandbox testing will also take place, where participating members will collaborate further, focusing on areas such as securities settlement, cross-asset trading, trade finance, and conditional payments.