SWIFT completes second test phase of CBDC with smart contract, atomic settlement capability

SWIFT said on March 25 that it discovered several applications for its central bank digital currency (CBDC) solution following a successful six-month test.

The company did not create its own CBDC but instead developed an interlinking solution for existing CBDCs — dubbed the SWIFT connector.

The company wrote:

“At the core of our solution is the DLT and smart contract layer, which maintains consistent records of transactions.”

SWIFT broadly described the platform as having applications in digital trade, securities, and foreign trade. It also noted that future versions of the platform could be expanded to areas beyond CBDCs, such as bank-led tokenized deposit networks.

Smart contracts for TradFi

Specific use cases include trade payments, foreign exchange, delivery versus payment (DvP), and liquidity-saving mechanisms.

SWIFT said its sandbox solution involves multiple digital ledger technology (DLT) networks. The company used Hyperledger Besu for the tokenization platform. It used R3 Corda and Hyperledger Fabric for buyer and seller networks and settlement instructions.

SWIFT also described atomic settlements and swaps, a blockchain or DLT-based approach to settlement involving the instant and simultaneous exchange of two assets. This type of settlement is similar to delivery versus payment (DVP) in traditional financial networks.

The platform also used smart contracts to automatically ensure that payments were executed once conditions were met. All four of SWIFT’s major use cases involved the use of smart contracts.

Largest test of its kind

SWIFT said its sandbox test involved 38 institutions over six months and called it “one of the largest known CBDC experiments to date” in this regard.

It added that, in terms of network activity, over 125 sandbox users carried out more than 750 transactions in the process. About 60 representatives from participating financial institutions participated in 20 collaborative working group meetings to discuss use cases.

The company plans to develop a production roadmap for the SWIFT connector but noted that progress will be based on “market developments and readiness.”

The service could meet growing interest in CBDCs around the world. Countries with active CBDCs include China, the Bahamas, Jamaica, and Nigeria. At least 130 other countries and regions are also exploring CBDCs, with recent developments in Europe, the Philippines, and Spain.

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