Swift says a new round of sandbox testing has found that its central bank digital currency interlinking technology can enable financial institutions to carry out a wide range of transactions using CBDCs and other forms of digital tokens, easily incorporating them into their business practices.
Messaging cooperative Swift has set itself the task of ensuring interoperability between digital currencies and tokenised assets to overcome the potential risk of fragmentation, caused by the use of different technologies and with different standards and protocols.
Last year it carried out sandbox testing that showed its connector technology could enable cross-border transfers and connect CBDCs on different networks with each other, as well as with fiat currencies.
Now, it has brought together 38 institutions - including commercial banks, central banks and financial market infrastructures - for a second phase of testing, exploring more complex use cases.
Swift's technology was used to connect and orchestrate transactions across simulated digital trade and tokenised asset and FX networks, alongside CBDCs for payments. More than 750 transactions were carried out over the course of the experiments.
Tom Zschach, chief innovation officer, Swift, says: "Fragmentation is a challenge for the entire industry, and ensuring interoperability between networks is vital to addressing this while also enabling new technologies to scale and reach their full potential."
The cooperative says the testing shows that its CBDC connector has the potential to simplify and speed up trade flows, unlock growth in tokenised securities markets, and enable efficient FX settlement - all while allowing financial institutions to continue to make use of their existing infrastructure.
In digital trade, the experiments demonstrated interoperability between different digital networks and trade platforms, with Swift’s solution facilitating atomic trade payments - payments that are completed simultaneously, alongside the transfer of assets, rather than sequentially.
Smart contracts and event-driven programming enabled the automation of payments only once certain conditions had been met, meaning trade flows could potentially become automated 24 hours a day, seven days a week.
The experiments also showed that the connector could play a role in foreign exchange. Working closely with CLS, the connector was shown to be interoperable with the existing market infrastructure, facilitating FX netting and settlement via CBDCs.
Sabib Behzad, head, digital assets and currencies transformation, Deutsche Bank, says: "Interoperability between DLT networks is an important piece of the puzzle to enable efficient connectivity between CBDC and other networks and to avoid silos.
"Testing Swift’s solution for different use cases such as DvP and FX with 38 commercial and central banks is a significant step to overcoming fragmentation and ensuring frictionless transactions."