Interbank Messaging Network SWIFT Teams Up With French IT Company Capgemini To Test Cross-border CBDC Payments

Interbank messaging network SWIFT has announced a partnership with French IT company Capgemini to test cross-border payments with central bank digital currencies (CBDCs). The partnership is the beginning of a new study to see how central bank digital currencies (CBDCs) can be used to facilitate payments between countries.

Central bank digital currencies (CBDCs) are becoming the order of the day with countries around the world advancing in their research and testing with the hope of issuing a CBDC in the nearest future. Countries such as Nigeria and China have issued digital versions of their currencies.

The research on CBDCs for cross-border payments will be the second project that SWIFT will be embarking on with regard to CBDCs. “In 2021, SWIFT conducted a first set of CBDC experiments that demonstrated we could successfully orchestrate a cross-border transaction between one entity on a DLT-based CBDC network and a second running on an established real-time gross settlement (RTGS) system,” its blog post read.

“Capgemini and SWIFT are working together to develop a proof of concept to link a variety of CBDC networks along with other traditional currency networks. Globally, most central banks are creating CBDCs, ‘with a number of banks using different technologies, standards, and protocols for their digital currencies,” SWIFT’s chief innovation officer Thomas Zschach announced on Thursday.

SWIFT is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. Although SWIFT has become a crucial part of global financial infrastructure, it is not a financial institution itself: SWIFT does not hold or transfer assets. Rather, its utility lies in its power to facilitate secure, efficient communication between member institutions, according to Investopedia.

SWIFT hopes to create a gateway that’ll intercept, translate, and send domestic CBDC transactions to SWIFT for onward transmission. This gateway will be built on existing SWIFT protocols, authentication models, and infrastructure.

“Facilitating interoperability and interlinking between different CBDCs being developed around the world will be critical if we are to fully realize their potential. Today, the global CBDC ecosystem risks becoming fragmented with numerous central banks developing their own digital currencies based on different technologies, standards, and protocols,” SWIFT’s chief innovation officer Thomas Zschach said.

“If left unaddressed, this fragmentation could lead to ‘digital islands’ springing up across the globe. Different systems and different CBDCs will need to be able to efficiently work together, or it will hamper the ability of businesses and consumers to make frictionless cross-border payments using CBDCs,” Nick Kerigan, Head of Innovation at SWIFT added.

“Navigating decentralization is complex with many technology choices, operating models, and policy considerations. Our well-defined taxonomy has helped us accelerate our efforts to build CBDC interlinks with SWIFT. We look forward to continue to collaborate in building industry standards and frameworks with SWIFT,” Sudhir Pai, Chief Technology & Innovation Officer, Financial Services at Capgemini said.

With more and more countries increasing their focus on CBDCs, a solution that’ll process cross-border payments will be highly relevant and this is why SWIFT is on this.