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Swift paves way for global use of CBDCs, tokens
Digital currencies, tokenized assets have potential to shape future payments, investment
The Asset 6 Oct 2022

Central bank digital currencies (CBDCs) and tokenised assets can move seamlessly on existing financial infrastructure – a major milestone towards enabling their smooth integration into the international financial ecosystem, according to recent findings by global payments messaging system Swift.

The findings, from two separate experiments, solve the significant challenge of interoperability in cross-border transactions by bridging between different distributed ledger technology (DLT) networks and existing payment systems, allowing digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts.

This important step forward, Swift states, builds on its core capabilities, and means that as CBDCs and tokens develop, they can be rapidly deployed at scale to facilitate trade and investment between more than 200 countries and territories around the world.

Interlinking CBDCs for seamless cross-border payments

Globally, nine out of 10 central banks are actively exploring digital currencies – often using different technologies and with a primary focus on domestic use. For the potential of CBDCs to be fully realised across borders, these digital currencies need to overcome inherent differences to interact with each other, as well as with traditional fiat currencies.

Swift, in collaboration with Capgemini, achieved CBDC-to-CBDC transactions between different DLT networks based on popular Quorum and Corda technologies, as well as fiat-to-CBDC flows between these networks and a real-time gross settlement system. The success showed that the blockchain networks could be interlinked for cross-border payments through a single gateway, and that Swift’s new transaction management capabilities could orchestrate all inter-network communication.

Fourteen central and commercial banks, including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo, are now collaborating in a testing environment to accelerate the path to full-scale deployment.

Unlocking potential of tokenised assets

In a separate experiment with a different group of participants, Swift similarly demonstrated that its infrastructure can serve as an interconnector between multiple tokenization platforms and different types of cash payment.

Working in collaboration with Citi, Clearstream, Northern Trust and SETL, its technology partner, Swift explored 70 scenarios simulating market issuance and secondary market transfers of tokenised bonds, equities and cash. It successfully served as a single access point to various tokenized networks and showed its infrastructure could be used to create, transfer and redeem tokens and update balances between multiple client wallets, as well as provide interoperability between different tokenization platforms and existing account-based infrastructure.

Tokenization is a relatively nascent market, but the World Economic Forum has estimated it could reach US$24 trillion by 2027. The potential benefits include greater market liquidity and fractionalization, which could increase access to investment markets for retail investors, and enable institutional investors to build stronger portfolios.

“Digital currencies and tokens have huge potential to shape the way we will all pay and invest in the future,” says Tom Zschach, Swift’s chief innovation officer. “But that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together.”

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