The global provider of secure financial messaging services, SWIFT, is testing to interconnect multiple domestic emerging CBDC networks for cross-border transactions. The Belgium-based network, which enables financial institutions to communicate with each other for global payments, has engaged French information technology services and consultancy firm Capgemini.
Interoperability of CBDCs
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 as it was primarily developed for the purpose of implementing domestic policies. Thomas Zschach, Chief Innovation Officer of SWIFT, believes that different systems of CBDCs need to work together for “frictionless” cross-border transactions, and SWIFT has a role to play in this.
“Facilitating interoperability and interconnection between different CBDCs being developed around the world will be critical if we are to fully realize their potential. Today, the global CBDC ecosystem is in danger of becoming fragmented with numerous central banks developing their own digital currencies based on different technologies, standards and protocols.”
Nick Kerigan, SWIFT’s head of innovation, noted that as CBDCs will increasingly be seen as “a new form of fiat currency”, several such platforms will be developed to run parallel to the traditional payment system to integrate with the traditional financial infrastructure.
In this case, SWIFT, whose technology solutions are accessible to more than 11,000 financial institutions in more than 200 countries, may want to enable “a highly scalable and easily integrated solution” for international payments through CBDCs.
The post also outlined the implementation of a gateway on a central bank’s domestic digital currency network as the key feature of this experiment:
“The gateway intercepts cross-border transactions on the network, translates them and sends them to the SWIFT platform for onward transmission to another CBDC network or established payment system.”
Partnering with Capgemini, the post revealed that SWIFT will focus on addressing three use cases: CBDC to CBDC, fiat to CBDC, and CBDC to fiat. The giant has also looked beyond CBDCs and sought to enable interoperability between other digital assets and currencies.
In 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, financial institutions in the region have struggled to survive.
Kicking Russia out of SWIFT was intended to prevent the country from being able to liquidate assets and transfer money between institutions that are members of the system. However, in an effort to isolate and punish the nation, the move sparked criticism from countries like Russia and China — who planned to migrate to their own messaging systems to counter the impact of sanctions.
Featured image courtesy of Caspian News
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