Swift has completed the second phase of sandbox testing for its connector for central bank digital currency (CBDC). The results, which have been published in a report, find “new use cases” for the solution across digital trade, securities, and FX. The bank messaging network claims in a press release that the connector will enable financial institutions to incorporate CBDCs and other digital assets without changes to their existing infrastructures.
The first phase of sandbox testing, completed early last year, was held over a 12-week period and involved 18 institutions. It tested the connector’s capabilities in cross-border transfers, simulating almost 5,000 CBDC-to-CBDC and CBDC-to-fiat transactions.
This time, the testing period lasted six months and explored “more complex use cases” with more than 750 simulated transactions. Swift claims it to be one of the largest known collaborations on CBDCs, involving 38 institutions ranging from central and commercial banks to market infrastructures from around the world. The focus now is on digital trade, as well as tokenised asset and FX networks, alongside CBDCs for payments.
Showing potential
In digital trade, the experiments “demonstrated interoperability between different digital networks and trade platforms”. The connector was able to facilitate atomic trade payments, which could be further customised with smart contracts and event-driven programming. This allowed payments to be automated only when certain conditions have been met, therefore enabling the potential for automated trade flows 24/7.
When tested on tokenised asset networks, the connector was able to “interlink multiple asset and cash networks and could facilitate atomic delivery versus payment across those platforms”. This addressed the question of interoperability, which is often cited as the main barrier to the growth of tokenisation.
To test the connector’s functionality in FX, Swift worked with CLS to simulate FX netting and settlement via CBDCs. The solution “was shown to be interoperable with the existing market infrastructure”.
One for all
As Reuters points out, should Swift succeed with the solution, “banks would have one main global connection point able to handle digital asset payments, rather than thousands if they were to set up an individual one with every counterparty”.
Swift has revealed plans to expand the use of the connector to support a wider range of emerging digital networks beyond CBDCs, such as platforms for tokenised deposits.