The Society for Worldwide Interbank Financial Telecommunication (SWIFT) China President, Wen Yang, discussed the challenges and solutions for cross-border central bank digital currency (CBDC) interoperability in a recent interview. With over 130 economies exploring CBDCs and nearly 70% of central banks planning to issue them in the next decade, there is a risk of fragmented systems that are unable to communicate with each other due to varying technological paths and standards. This could lead to “data silos” where information is not shared effectively among different CBDC systems. Eleven countries have already fully launched their CBDCs, with others in various stages of development.
China has implemented its digital yuan in various applications, while the European Central Bank is preparing for a digital Euro and India sees one million digital rupee transactions daily across the country. Swift launched the second phase of its CBDC sandbox in July 2023 to explore complex use cases in digital trade, digital assets, and foreign exchange networks for CBDC payments and settlements. This project involved 38 financial institutions globally and tested applications of seven different CBDCs. The importance of interoperability in cross-border CBDC use was emphasized, with the sandbox results supporting Swift’s proposal to simplify digital transactions while allowing financial institutions to continue using their existing infrastructures.
Tests on the interaction between digital trade platforms and CBDC networks using Distributed Ledger Technology (DLT) and smart contracts showed that automating trade payments is technically feasible. Swift plans to expand its CBDC connector solution to test more extensive use cases in a comprehensive environment, including enhancing support for on-chain forex settlements and cross-border payments to meet growing market demands. This effort aims to bridge the technical gaps among different CBDC systems and improve interoperability. The goal is to create a seamless cross-border CBDC network that allows for efficient and secure digital transactions between different economies.
The fragmentation challenge in CBDC systems due to differences in technological paths and standards among economies has led to a need for solutions that promote interoperability. Swift’s sandbox project and focus on testing complex use cases in digital trade, digital assets, and foreign exchange networks for CBDC payments and settlements aim to address these challenges. By involving various financial institutions from around the world, regulators, commercial banks, and market infrastructures to test applications of different CBDCs, Swift is working towards creating a more interconnected and efficient cross-border CBDC network. The organization’s efforts also involve enhancing support for on-chain forex settlements and cross-border payments to meet the growing market demands for seamless digital transactions.
As more countries explore and develop their CBDC systems, the need for interoperability and technical solutions to bridge the gaps among different economies becomes increasingly crucial. Swift’s initiatives and projects, such as the CBDC sandbox and the expansion of its CBDC connector solution, demonstrate the organization’s commitment to addressing the challenges in cross-border CBDC use. By testing complex use cases and enhancing support for on-chain forex settlements and cross-border payments, Swift aims to simplify digital transactions while ensuring that financial institutions can continue to utilize their existing infrastructures. The goal is to create a more interconnected and interoperable cross-border CBDC network that facilitates efficient and secure digital transactions globally.
