Because of its speed and efficiency, CBDC is being considered for cross-border payments.
SWIFT, the Society for Worldwide Interbank Financial Telecommunication, is prepared to put the interoperability of Central Banks of Digital Currencies (CBDC) to the test by connecting various CBDC networks to make cross-border payments.
Apart from connecting financial institutions around the world to communicate and execute financial transfers, the Belgium-based member-owned cooperative has enlisted the support of digital services provider Capgemini to carry out its trials.
While there aren’t many CBDCs available for SWIFT to experiment with right away, nine nations have already implemented CBDCs, with China’s Digital Yuan (e-CNY) being one of the most commonly used digital currencies.
According to a May 19 official blog post, employing CBDCs for cross-border payment solutions may have been a blind spot for the initial idea of a digital currency, because its development was primarily focused on resolving challenges in accordance with domestic rules.
However, according to Thomas Zschach, Chief Innovation Officer at SWIFT, new CBDC networks must collaborate to enable “frictionless” cross-border payments, and SWIFT will play a key role.
“Capgemini and SWIFT are collaborating on a proof of concept that will connect a number of CBDC networks with traditional currency networks.
Most central banks throughout the world are developing CBDCs, with different technology, standards, and protocols being used by different institutions for their digital currencies “Zschach explained.
According to the company’s announcement, it plans to build a gateway that will intercept, translate, and send domestic CBDC transactions to SWIFT for further transmission.
Existing SWIFT protocols, authentication models, and infrastructure will be used.
SWIFT connects about 11000 financial institutions in over 200 countries.
The new partnership builds on the work SWIFT did with Accenture last year.
A CBDC network and RTGS system were able to undertake a cross-border transaction as a result of their partnership.
If the experiments are successful, they will show that SWIFT has the capability and technological components to connect multiple networks.
Nick Kerigan, the head of innovation at SWIFT, stated, “This would assist CBDCs in addressing a significant industry issue.
We can also help central banks build their own CBDC networks that can handle cross-border transactions.”