SWIFT Could Use CBDCs to Improve Cross-Border Payments
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SWIFT Could Use CBDCs to Improve Cross-Border Payments

SWIFT is exploring interlinking multiple CBDC networks for faster and cheaper cross-border transactions.
Neither the author, Ruholamin Haqshanas, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Mastercard’s CEO Michael Miebach recently said that he does not expect SWIFT, the biggest global payments system, to exist in five years. While a Mastercard spokesperson later downplayed Miebach’s remark, they also noted that SWIFT will not remain in its current form in the years to come—and Central Bank Digital Currencies (CBDCs) could play a pivotal role.

SWIFT Explores CBDCs for Facilitating Cross-Border Payments

SWIFT, the Society for Worldwide Interbank Financial Telecommunication, is a vast messaging network that banks and other financial institutions use to quickly and securely send and receive information, such as money transfer instructions.

Despite being a crucial part of global financial infrastructure, SWIFT is not a financial institution itself. Instead, it is a global financial artery that facilitates secure and efficient communication between member institutions by assigning each financial organization a unique code that can then be used to conduct payments. 

However, SWIFT has recently been exploring new options to expand its current business model. The messaging platform has attempted to interlink multiple CBDC networks to experiment with the use of digital assets for cross-border transactions. 

In a blog post on May 19, SWIFT noted that using CBDCs in cross-border payments might have been a blind spot for this form of digital currency since they are essentially developed to be used for domestic payments. However, SWIFT’s Chief Innovation Officer Thomas Zschach said he believes different systems of CBDCs can work together for “frictionless” cross-border transactions. 

To try this idea, SWIFT has partnered with French IT company Capgemini to test how they can interlink multiple CBDC networks to make cross-border payments with central bank digital currencies more seamless and frictionless. Thomas Zschach said:

“Facilitating interoperability and interlinking between different CBDCs being developed around the world will be critical if we are to fully realise their potential. Today, the global CBDC ecosystem risks becoming fragmented with numerous central banks developing their own digital currencies based on different technologies, standards and protocols.”

Notably, this is not the first time SWIFT is experimenting with CBDCs. Back in 2021, the payments system conducted its first set of CBDC experiments that showed it is possible to conduct a cross-border transaction between “one entity on a DLT-based CBDC network and a second running on an established real-time gross settlement (RTGS) system.”

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Multi-CBDCs Could Enable International Settlements

Aside from SWIFT, there have also been other attempts at using CBDCs to improve cross-border settlements. Earlier this year, Project Dunbar, a technical experiment led by the BIS Innovation Hub that involved five central banks, successfully developed prototypes to prove the viability of the multi-CBDCs concept. 

The joint effort, which had started in 2021, designed two prototypes for a shared platform that could enable international settlements using CBDCs of different countries. In a report, the Bank of International Settlements (BIS) said:

“This initial phase of the project successfully developed working prototypes and demonstrated practicable solutions, achieving its aim of proving that the concept of multi-CBDCs was technically viable.”

At the time, the BIS claimed such a system is necessary since cross-border payments are currently very inefficient. For perspective, several banks would need to get involved in order to complete a single cross-border transfer. Each of these banks needs to record transactions on multiple ledgers on multiple systems developed using different technologies, which make transactions slower and more expensive. 

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Do you think multi-CBDCs could be the future of cross-border payments? Let us know in the comments below. 

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