SWIFT embraces central bank digital currencies after sandbox success

Promises it can handle digi-bucks and tokenized assets without new infrastructure, maybe next year

One of the many sanctions imposed on Russia after its illegal invasion of Ukraine was exclusion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) – the messaging network that most of the world's banks use to move money across borders.

So important is SWIFT to the world economy that Australian authorities have described Russia's removal from the network as "the 'nuclear option' of financial sanctions." It is that debilitating to be cut off from the network.

While SWIFT is critical, it is also clunky. Transfers using the network can take days to complete – an anomaly at a time when realtime payments are commonplace. Central Bank Digital Currencies (CBDCs) – tokenized versions of fiat currencies – have been touted by numerous governments as a means of speeding cross-border transactions. SWIFT's shortcomings are also the target of many blockchain startups that have developed tech to move cash around the world more … swiftly.

SWIFT is alive to the threat tokenized assets pose to its central place in the global economy, and has therefore conducted its own experiments with CBDCs and similar techs.

On Monday it proclaimed that its most recent sandbox exercise – which tested tech that interlinks SWIFT and CBDCs – proved "institutions can continue to use much of their existing infrastructure alongside new, innovative technologies."

"The experiments found that our interlinking solution has the potential to simplify and speed up trade flows, unlock growth in tokenized securities markets, and enable efficient FX settlement," declares SWIFT's summary of the sandbox exercise.

Long story short, SWIFT thinks it can cope with all the stuff that delights blockchain-based finance disruptors: smart contracts and events-based programming to enable automated trading 24x7, atomic delivery versus payment (a technique that sees delivery of goods or securities noted on a blockchain, triggering payment so that money doesn't change hands before assets have been exchanged), and interoperability between CBDCs and other tokenized assets.

SWIFT's announcement makes repeated mention of all this being possible while institutions use their existing infrastructure.

Which is an important factor, because SWIFT commenced operations in 1980 and has thousands of institutional customers who have probably coded hundreds of thousands of apps to use the platform.

Financial institutions are infamously among the most likely organizations to house legacy apps, and the sheer weight of legacy code makes it hard for them to move on from all such programs. SWIFT appears to be betting that it can deliver enough of the tokenized world to its customers that they won't mind bringing blockchain-based apps into their existing estates.

And according to Reuters, SWIFT will deliver a CBDC platform in the next one or two years.

Doing so successfully would see SWIFT blunt the existential threat tokenized assets represent to its future – and perhaps also make life harder for the likes of Russia and China as they try using blockchain-based instruments to ease their own cross-border cashflows. ®

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