SWIFT to Connect CBDCs with Global Finance System

SWIFT, the global network for bank messaging, is preparing to launch a new platform in the next one to two years to integrate the emerging central bank digital currencies (CBDCs) with the current financial system. This move is set to be one of the most impactful developments in the evolving CBDC landscape, given SWIFT's pivotal role in global banking. The platform will be refined based on the timing of major CBDC launches.

At present, about 90% of central banks around the world are exploring digital currencies. They aim to avoid being left behind by cryptocurrencies like Bitcoin, but are facing significant technological challenges. SWIFT has recently completed a six-month trial involving a wide range of central banks, commercial banks, and settlement platforms. This trial was one of the largest global collaborations focused on CBDCs and tokenised assets, aiming to ensure that CBDCs from different countries, despite their varying underlying technologies, can work together seamlessly. The trial also explored how these digital currencies could facilitate complex trade or foreign exchange payments and be automated to enhance speed and reduce costs.

The results of the trial demonstrated that CBDCs could be integrated with existing banking infrastructure and provided a timeline for SWIFT to move from the experimental phase to a more tangible product. The development of this new platform is expected to enhance SWIFT’s dominance in the global bank-to-bank network, although the timeline may shift if there are delays in the launch of major CBDCs.

Countries like the Bahamas, Nigeria, and Jamaica have already launched CBDCs, while China is making significant progress with its digital yuan. The European Central Bank is also working on a digital euro, and the Bank for International Settlements is conducting cross-border trials. SWIFT's network, which spans over 200 countries and connects more than 11,500 banks and financial institutions, processes trillions of dollars daily, giving it a significant advantage in this space.

Since 2022, SWIFT has gained considerable visibility outside banking circles, particularly after severing ties with Russian banks due to sanctions related to the Ukraine conflict. This new CBDC platform aims to provide a single global connection point for handling digital asset payments, streamlining the process compared to setting up individual connections with each counterparty.

Looking ahead, there is also a forecast that by 2030, approximately $16 trillion worth of assets could be tokenised, transforming assets like stocks and bonds into digital forms that can be issued and traded in real time. SWIFT’s new platform is expected to facilitate this transformation by providing a scalable solution for integrating various networks.