Author: Payments

Compiled by: TechFlow

Deep Tide Note:

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global financial communications network that provides a standardized and secure communications network for banks and financial institutions. As the hub for global cross-border payments and financial information transmission, SWIFT connects more than 11,000 institutions in more than 200 countries to ensure the efficient operation of international transactions. It not only reduces the complexity and risks of cross-border transactions through a unified message format, but also promotes the interoperability of digital assets and emerging currencies, providing strong support for innovation in the global financial market. This article reviews Swift's important experimental results and looks forward to its future development direction in the field of digital assets and central bank digital currencies (CBDCs).

We are forging a path towards real-world solutions that will enable our members to access and trade regulated digital assets and currencies on the Swift network. This follows a series of groundbreaking experiments with our community in recent years, and we are now entering the next phase.

Interest in digital assets and currencies continues to grow, and the past two years have given us a clearer understanding of the potential value of these developments in the industry.

Predictions for the growth of digital assets vary. For example, Standard Chartered and Synpulse recently estimated that the market for tokenized real-world assets will reach $30 trillion by 2034. Market sentiment is strong, with 91% of institutional investors interested in investing in tokenized assets, according to a survey by Celent and BNY Mellon.

Our vision is to enable our members to leverage their Swift connection to transact using existing and emerging asset and currency types.

Eliminating digital silos

However, before digital assets and currencies can truly scale globally, several challenges must be overcome. The most important of these is the growth of different platforms, technologies, and regulatory environments that support digital innovation. This has led to the formation of a fragmented "digital island" ecosystem, increasing the costs and risks for market participants in their operations.

For example, institutional investors are unable to expand their digital asset businesses due to the complexity of multiple tokenization platforms. And in terms of digital currencies, although the latest Atlantic Council data shows that more than 130 countries and monetary unions are currently exploring central bank digital currencies (CBDCs), much work still needs to be done to integrate these emerging currencies into the broader global economy.

Driving global interoperability

Over the past 50 years, Swift has played an important role in facilitating global interoperability and enabling fast, frictionless, and secure transactions. As we enter the next phase of our strategy, we will continue to enhance our interoperability capabilities with new systems, technologies, assets, and currencies.

In our Innovation Lab, we have been actively exploring potential solutions for extending global interoperability to central bank digital currencies (CBDCs) and tokenized assets for many years. Recently, we have brought together industry forces to conduct a series of groundbreaking research projects to explore how existing Swift capabilities and infrastructure can effectively support interoperability between different asset classes and network types.

Our successful blockchain interoperability experiments demonstrated how Swift’s infrastructure can facilitate the transfer of tokenized value between public and private blockchains. Our Phase 1 and Phase 2 Central Bank Digital Currency (CBDC) Sandbox projects – conducted in partnership with leading central and commercial banks from Europe, Asia, and North America – demonstrated how we can connect CBDCs across different networks and bridge multiple asset and cash networks.

Now we are taking our goals to a higher level

Our vision is to enable our members to leverage their Swift connections to trade swaps, using existing and emerging asset and currency types.

We have a proven track record as a trusted and efficient central platform for transactions using fiat currencies and securities instruments. Now, we are further developing our infrastructure to provide our members with equal access to emerging digital asset classes and currencies, covering multiple application scenarios such as payments, securities, foreign exchange, trade, etc.

Building on our learnings, we are paving the way for real-world solutions that interconnect all forms of digital assets and currencies – including plans to test multi-ledger delivery-to-payment (DvP) and payment-to-payment (PvP) transactions on Swift’s secure global platform. In the future, this could enable securities buyers to pay and exchange tokenized assets in real time on our network.

The cash component of DvP settlement execution is particularly challenging due to the lack of a globally accepted digital currency. We are therefore looking for ways to connect tokenized asset settlements with corresponding payment transfers made on the Swift network. The payment component will initially use existing fiat currencies, but will later be able to use tokenized forms of money such as central bank digital currencies (CBDCs), tokenized commercial bank money, or regulated stablecoins.

Finally, we are also testing our interconnect capabilities as a technology solution for interconnecting emerging bank-led networks, such as the U.S. Regulatory Settlement Network, with other financial infrastructure.

What happens next?

While much has been achieved, much more remains to be done.

We will continue to work with the financial community to develop the technical solutions needed to enable interoperability and access to digital assets and currencies. In the coming months, we will also explore the impact of implementation on workflows, standards and market practice requirements to achieve scale - more information will be provided before Sibos in 2024.

We are excited about the future of digital assets and currencies on our network and will continue to work with our community to drive progress in this area.