Swift, the messaging system used for much of today’s cross-border financial transactions, has just completed tests that it says will enable digital currencies and tokenised assets to be moved seamlessly across today’s infrastructure.
Two separate experiments it carried out in the past eight months have allowed it to interlink central bank digital currencies (CBDCs) across borders, as well as interconnect different tokenisation platforms with cash payment.
If the early promise is fulfilled, this could present a breakthrough in the complex infrastructure needed to integrate digital currency transactions and tokens with existing fiat systems in future.
Swift connects more than 11,500 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories today. Its latest move into CBDCs and tokens reflects the growing momentum in these areas among financial institutions.
CBDCs are digital currencies that often use distributed ledger technology (DLT), in a similar way that cryptocurrencies use blockchain to keep records, though they are monitored and regulated by central banks.
Governments have seen CBDCs as a way to leverage the technology of digital currencies but without the anonymity and risks of fraud of unregulated cryptocurrencies. Nine out of 10 central banks are actively exploring digital currencies today, according to Swift.
In its trial, carried out with consultancy firm Capgemini, CBDC-to-CBDC transactions were made between different DLT networks based on the popular Quorum and Corda technologies.
Fiat-to-CBDC flows between the networks were also possible for real-time settlement, according to Swift yesterday.
This, it believes, shows that blockchain networks could be interlinked for cross-border payments through a single gateway, instead of having to set up multiple links among entities.
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 testing the technology, according to Swift, though it didn’t say when full-scale deployment is expected.
In its second experiment, Swift said it had managed to connect up multiple tokenisation platforms, as well as with different types of cash payment.
The trial with Citi, Clearstream, Northern Trust and SETL simulated the issuance and transfers of bonds, equities and cash that are tokenised. Again, Swift was able to serve as a single access point for the various tokenised networks.
It said 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 tokenisation platforms and existing account-based infrastructure.
Tokenisation means to convert the ownership of an asset, which could be equity or even artwork (yes, non-fungible tokens), into a digital form held on a blockchain or distributed ledger. This enables it to be traded or even divided up, which Swift now says will be more easily done with its network.
“Tokenisation has great potential when it comes to strengthening liquidity in markets and increasing access to investment opportunities, and Swift’s existing infrastructure can ensure these benefits can be realised at the earliest opportunity, by as many people as possible,” said Tom Zschach, the chief innovation officer at Swift.
“For CBDCs, our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway, ensuring the instant and smooth flow of cross-border payments,” he added.
