SWIFT declares second sandbox connector tests a success for CBDC and more

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The Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging network has released the results of the second phase of sandbox testing for its central bank digital currency (CBDC) interlinking solution, which it calls a connector. 

The project looked at four use cases, not all of which involved CBDC, according to the report it released on the test results. It experimented with digital trading with atomic (instantaneous) settlement using smart contracts. It connected tokenization platforms to facilitate atomic delivery versus payment and worked with financial infrastructure firm CLS Group to show the connector’s capability of connecting existing foreign exchange infrastructures using CBDC.

Schematic of a proposed FX settlement system. Source: SWIFT

The fourth use case, involving using its Liquidity Saving Mechanism algorithms to reduce fragmentation of liquidity across platforms, was described as a “paper exercise, accompanied by bilateral discussions.”

The project used R3’s Corda and the Hyperledger Fabric and Besu blockchains to demonstrate the connector’s interoperability among them. It concluded:

“A single point of access provided by Swift can enable institutions to reuse their existing channels, reach new networks, and bring down participation costs.”

SWIFT also emphasized that traditional financial solutions will continue to exist and demand interconnectivity as well.

With the completion of the sandbox experiments, SWIFT plans to further develop the beta version of its connector, concentrating on the implementation of smart contracts across networks, cryptographically locking and releasing tokens across networks and preserving data and programmability of tokens across networks.

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Over 125 users made more than 750 simulated transactions to demonstrate complex use cases for the SWIFT CBDC interlinking solution. Among the participants in the sandbox’s second phase were ANZ, Citibank, Deutsche Bank, DTCC, HSBC, Société Générale, Standard Chartered, Sumitomo Mitsui and Shanghai Commercial & Savings Bank, as well as at least seven central banks or monetary authorities.

Source: Nick Kerrigan 

The beginning of the tests was announced in September. SWIFT wrapped up the first testing phase in March 2023.

SWIFT is looking far and wide for future use cases. It has been simultaneously experimenting with settlement using a unified ledger model. Like the CBDC sandbox, this research emphasized the ability to use existing technology, including SWIFT’s.

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