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SWIFT Preparing for a Future Where CBDCs Make Old Standards Obsolete

Published September 15, 2023 10:01 AM
James Morales
Published September 15, 2023 10:01 AM
Key Takeaways
  • SWIFT protocols are central to the legacy global payments infrastructure.
  • Now, as countries around the world embrace CBDCs, the organization is exploring how they will interconnect.
  • By exploring CBDC interoperability today, SWIFT could secure a continued role for itself.

Founded as the Society for Worldwide Interbank Financial Telecommunication in 1973, SWIFT initially connected 239 banks in 15 countries. Today, it has become a crucial part of the global financial infrastructure. In December 2022 , 11,696 institutions in over 200 countries connected to SWIFT, sending upward of 40M messages per day.

However, the interbank messaging system that propelled SWIFT to the heart of international finance could one day become obsolete. Now, the organization is preparing for a future where crypto and CBDCs transform how the world moves money.

SWIFT Launches New Cross-Border CBDC Pilot

According to the Atlantic Council, 9 out of ten central banks worldwide have implemented or are exploring CBDCs, representing 98% of global GDP.

Already, 11 countries have fully launched a CBDC system, while pilots such as China’s are expanding at pace.

However, the global CBDC ecosystem risks becoming fragmented. With so many central banks developing digital currencies, friction between different technologies could inhibit cross-currency transactions.

CBDC around the world, country progress
  CBDC projects around the world

With the majority of the world’s banks already participating in the SWIFT network, the organization is well-placed to define the standards for CBDC interoperability. As the global CBDC infrastructure emerges, SWIFT is exploring the challenge alongside central banks.

In the latest initiative, Swift has entered a new phase of its work on CBDC cross-compatibility.

On Wednesday, September 13, SWIFT announced  that three central banks are beta testing its solution for interlinking CBDCs. Additionally, 30 central and commercial banks are participating in a sandbox to explore further use cases.

Commenting on the project, Tom Zschach, Chief Innovation Officer at SWIFT, said, “the financial community has already recognized the strong potential of our CBDC innovations for preventing digital islands while securely bridging the payment systems of today and the future.”

“This next phase of testing and exploration will help us further refine the solution to ensure it is as effective as possible,” he added.

Remaining Relevant in Times of Change

Presently, SWIFT accounts for a significant portion of international payments.

Yet, alternative technologies and increasingly integrated domestic payment networks threaten to overshadow SWIFT’s legacy messaging system.

In the 21st century, the emergence of blockchain technology has revolutionized the field of cross-border transactions.

For example, in 2022, Ripple’s blockchain-powered cross-border payment solution RippleNet processed $2.3B  in transactions. In the same year, the value of stablecoin transfers surpassed $7 trillion .

Compared to the multi-layered legacy systems in which SWIFT is embedded, modern alternatives are far more efficient.

However, CBDCs could significantly streamline international payment flows without disintermediating central banks. 

Going forward, SWIFT’s role in the emerging CBDC paradigm will likely resemble its current status. 

Rather than building bridges between different currencies, SWIFT sets the standard by which payments are initiated, while connected bank and central bank infrastructures facilitate settlement. For CBDC transactions, SWIFT’s latest research  envisages a similar role.

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