SWIFT joins race for the future of money with central bank digital currency blueprint

The global financial messaging system, SWIFT has successfully shown that central bank digital currencies (CBDCs) and other tokenised assets can operate across the existing financial infrastructure. 

Following an 8-month experiment on different technologies and currencies, SWIFT's findings solve significant challenges in interoperability in cross-border transactions through the use of blockchain technology – allowing for digital assets to "flow smoothly" alongside traditional financial assets, the report suggests. 

In the first experiment, 14 central and commercial banks including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, SMBC, Standard Chartered, UBS and Wells Fargo are currently collaborating in a testing environment to accelerate the CBDC deployment. 

According to the CBDC tracker, 105 countries across the globe have started their own CBDC research projects – with 66 countries actively researching CBDCs. Last month, the Biden administration unveiled its 'First-ever Comprehensive Framework for Responsible Developments of Digital Assets', stating that a US CBDC had the potential to offer "significant benefits". 

The second experiment focused on the tokenisation of digital assets. Working in collaboration with Citi, Clearstream, Northern Trust, and SETL, SWIFT explored 70 scenarios stimulating market issuance and secondary market transfers of tokenised bonds, equities and cash. 

As far back as 2019, banks such as JP Morgan have tested digital coins representing fiat currency. The JPM Coin runs on the bank's Onyx blockchain platform which is predominantly used for cross-border money transfers. Other examples include the French bank Société Générale which became the first bank to launch a covered bond as a security token on a public blockchain in April 2019. 

The World Economic Forum has estimated that tokenisation of assets could reach $24tn by 2027. 

"Digital currencies and tokens have huge potential to shape the way we will all pay and invest in the future," said Tom Zschach, chief innovation officer at SWIFT. 

"For CBDCs, our solution will enable central banks to connect their networks simply and directly to all other payment systems in the world through a single gateway," he adds. 

Swift's successful experiment and subsequent CBDC and tokenisation blueprints came following the Opportunities and Challenges of the Tokenisation of Finance in which Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, Managing Director of the Monetary Authority of Singapore, Ravi Menon and Bank of International Settlements General Manager Agustin Carstens touched upon topics ranging from DeFi, stablecoins and central bank digital currencies (CBDCs). 

According to Powell, Menon and Lagarde, CBDCs and stablecoins were both two parts of the digital asset ecosystem that all jurisdictions were looking into, despite Powell noting that a cashless society would not occur "for some time". 

SWIFT is only the latest traditional financial firm to join the race for the future of money. At present, traditional financial initiatives and consortiums have come together across the US, UK and Europe in an attempt to develop the infrastructure for retail CBDCs. 

In the UK Digital FMI, Digital Pound Foundation and Millicent Labs have all been developing traditional financial sterling-backed stablecoins. Malta-based STSS has launched a EURO-denominated stablecoin and is currently looking to meet the regulatory demands set out under the Markets in Crypto Assets (MiCA) framework. 

Across the Atlantic, San Francisco-based United States Dollar Finly (USDF), which is backed by a consortium of eight federally insured banks have tested the waters with a US dollar-denominated stablecoin. 

Crypto-native stablecoin issuers were perhaps the most natural fit for the development of CBDCs and asset tokenisation programs but following the collapse of terraUSD in May, regulators have rushed to contain the less-than-stable stablecoin market. 

Now the likes of Circle's USDC, Tether's USDT and Binance's BUSD will face stiff competition from traditional banks, consortiums and payment system providers like SWIFT.