SWIFT Publishes Blueprint For Central Bank Digital Currency

Financial messaging system SWIFT has this week published its blueprint for those central banks considering a digital currency.

Reuters reported that SWIFT’s blueprint for a central bank digital currency (CBDC) network comes after an 8-month experiment on different technologies and currencies.

It should be noted that the central banks of various countries have already developed, or are in the process of developing, their own digital currencies. In February for example, India’s central bank said it would launch a digital rupee sometime in 2022 or 2023.

Central bank digital currency

It is reported that around 90 percent of the world’s central banks are now using, trialling or looking into CBDCs.

In April 2021 for example, the Bank of England set up a taskforce after then Chancellor, Rishi Sunak asked the bank to look at the case for a new “Britcoin”, or central bank-backed digital currency.

This week however, SWIFT announced that the issue with multiple players building different CBDC solutions, on different technology platforms, could lead to disjointed systems that can’t interact with one another.

SWIFT’s main advantage is that its existing network is already usable in over 200 countries and connects more than 11,500 banks and funds.

“Digital currencies and tokens have huge potential to shape the way we will all pay and invest in the future,” says Tom Zschach, chief innovation officer at SWIFT. “But that potential can only be realised if the different approaches that are being explored have the ability to connect and work together.”

“We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a major step towards unlocking the potential of the digital future,” said Zschach.

SWIFT said that its CBDC trial had involved 14 central and commercial banks – including the Banque de France, Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo.

“For CBDCs,” said Zschach, “our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway, ensuring the instant and smooth flow of cross-border payments.”

SWIFT also carried out a separate set of experiments, where it collaborated with Citi, Clearstream, Northern Trust and SETL, to assess how its existing infrastructure can be used as a single access point to multiple tokenisation platforms.

Global solution?

Some countries such as the Bahamas and Nigeria already have their own CBDCs up and running.

And in January 2022 China’s central bank (People’s Bank of China) launched a pilot version of a wallet app, in an effort to expand usage of the digital version of China’s sovereign currency.

Japan is also looking into its own CBDC, and in June 2022 US Federal Reserve Chairman Jerome Powell said that the development of an official digital version of the dollar could help safeguard its global dominance.

Some signs of global agreement came in October 2021, when G7 finance ministers and central bank governors held a meeting, where they agreed cryptocurrency principles and corporate tax reform.

At the same time the G7 finance officials also endorsed 13 public policy principles for central bank digital currencies, and stressed they should be grounded in transparency, the rule of law and sound economic governance.

Crypto reluctance

The move towards CBDC comes after years of entrenched worry and concern about the growing use of cryptocurrencies in general.

The governor of the Bank of England (BoE) Andrew Bailey, has previously warned cryptocurrencies “have no intrinsic value” and people should only buy cryptocurrencies if they are prepared to lose all their money.

He then went one step further and said cryptocurrencies and similar assets were a danger to the public.