After an 8-month experiment, SWIFT drafts a blueprint for the central bank digital currency network

After an 8-month experiment, SWIFT drafts a blueprint for the central bank digital currency network ...

Following an 8-month experiment on different technologies and currencies, SWIFT has laid out its vision for a global central bank digital currency network.

The trial, which involved France and Germany''s national central banks, as well as international lenders, including HSBC, Standard Chartered, and UBS, examined how CBDCs might be used internationally and even converted into fiat money if necessary.

Around 90 percent of world''s central banks are now using, trialing, or examining CBDCs. Most don''t want to be left behind by bitcoin and other cryptocurrencies, but are grappling with technological challenges.

Innovation Head Nick Kerigan of SWIFT said that its study, which will be followed by more advanced testing over the next year, resembled a bicycle wheel in which 14 central and commercial banks in total connected spoke-like into its main hub.

If banks were to establish connections with each other individually, the idea is that once scaled-up, banks might have only one main global connection, rather than tens of thousands.

"We believe that the number of connections we need is much less," Kerigan said. "Therefore, you are likely to have less breaks (in the chain) and you will achieve greater efficiency."

The study examined several different under-mentioned CBDC techniques known as Distributed Ledger Technologies. The use of these technologies has been also raised as a potential obstacle for rapid global adoption.

A separate trial was conducted alongside Citi, clearing house Clearstream and Northern Trust on ''tokenised'' assets that traditional assets, such as stocks and bonds, could then be issued and traded in real-time.

Some countries, including the Bahamas and Nigeria, have already established CBDC''s. China is well-vanaged with the real-life trials of an e-yuan, while the Central Bank umbrella group, the Bank for International Settlements, has also begun cross-border trials.

SWIFT''s main advantage is that its existing network is still functional in over 200 countries and connects over 11,500 banks and funds.

This year, the Belgian firm has moved from being virtually unknown outside banking circles to a household name after removing most of Russia''s banks from its network as part of the West''s sanctions for Ukraine''s invasion.

Kerigan said that a trend might happen in a fresh CBDC system, but was dissatisfied with whether or not it would hinder countries from joining one.

"En final, what most central banks are looking to do is to provide us with a CBDC for the people, the businesses, and the organizations in their jurisdiction."

"So a solution that''s swift and efficient and that allows access to as many other countries as possible would appear to be attractive," says the author.

2022 Thomson Reuters

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