Trust should be the Critical Factor for CBDC Payments – SWIFT.
SWIFT and Accenture collaborated on a paper about central bank digital currencies (CBDC). One of the most important takeaways is that it intends to maintain and expand its current position as a trusted intermediary for cross-border CBDC payments.
SWIFT’s Chief Innovation Officer, Thomas Zschach, said, “We look forward to actively engaging our group on issues related to CBDCs and driving responsible innovation consistent with our strategic vision for instant end-to-end transactions.”
SWIFT commissioned Accenture to research the CBDC subject in November 2020.
It has also become interested in the broader digital asset ecosystem.
From afar, it’s clear that the Bank for International Settlements (BIS) is already doing extensive research in this field, including cross-border payments. On the other hand, the BIS focuses on central banks, while SWIFT’s domain is commercial banks and payments.
According to SWIFT, about 80% of circulating money is commercial bank money at the moment. CBDC schemes are likely to be two-tiered, with central banks issuing a digital currency distributed by banks and payment providers in the same way that physical cash is distributed.
As a result, SWIFT sees itself as a cooperative entity at the payment stage, convening CBDC discovery by partnerships.
Key Focus Areas and New Experiments
SWIFT intends to pursue four areas of concern, with the initial emphasis on providing cross-network support. In other words, it aims to make CBDC and non-CBDC payment networks, as well as digital asset networks, interoperable.
The CBDC issuance and redemption process involves allowing transfers between real-time gross settlement (RTGS) systems and CBDC networks. Accenture and SAP teamed up in 2019 to combine token-based payments with an RTGS network.
SWIFT’s first test involves orchestrating a cross-border trade involving a conventional wholesale RTGS payment system and a DLT-based CBDC network.
The other test includes transactions between two CBDCs, one of which uses Quorum enterprise blockchain technology and Corda.
The CBDC cross-chain exchange uses hash time-locked smart contracts and does not rely on SWIFT. The payment, however, includes correspondent banks, which is where SWIFT comes into play.
Future CBDC Research
Payment providers are required to build creative applications on top of CBDCs, such as programmable money. As a result, a second potential field that SWIFT intends to investigate is application offerings.
Third, it aspires to provide essential network services such as identification, transaction validation, notary services, and token structure definition.
Finally, it’s considering creating a “Distributed Ledger Technology (DLT) network” to support CBDCs.
Although improvements to the SWIFT platform and infrastructure will be needed to function as a CBDC Network(s) as a service, the paper states that “as the CBDC ecosystem evolves, we will consider and assess this potential role.”
SWIFT now serves as a messaging platform. The transaction and the currency are crucial with CBDC, particularly if it is tokenized.
As a result, SWIFT says it plans to investigate its position in CBDC payments messaging as well as “as a carrier of actual CBDC value in whatever form it is issued.”