SWIFT fights to stay relevant: Big plans for CBDCs

Rick Steves

SWIFT intends to play both the role as a carrier of authenticated information about CBDC transactions and as a carrier of actual CBDC value in whatever form it is issued.

SWIFT threatens to block Israel, Russia and Iran

Swift wants to play a unique role in a payments ecosystem that includes central bank digital currencies.

A new joint paper from SWIFT and Accenture looks at the opportunities and challenges of central bank digital currencies for international payments, sets out practical requirements for the adoption of digital currencies at scale, and outlines how SWIFT can support the financial community as new solutions are developed.

David Treat, a Senior Managing Director at Accenture, said: “Central Bank Digital Currency has emerged as an important new tool in the global push to modernise financial infrastructure to meet the needs of our increasingly digital and connected world.”

With over half the world’s central banks actively exploring the use of CBDCs, a viable solution in international payments must include a scalable interchange mechanism, institutions that can provide interoperability, a foreign exchange mechanism, standardised interoperable rich data, financial crime compliance, a strong governance model, and compatible local infrastructure.

Thomas Zschach, Chief Innovation Officer, SWIFT, commented: “Making payments infrastructure based on CBDCs efficient and interoperable with the broader economy presents some new challenges, but the majority are the same as those faced by existing payment solutions.

“We look forward to actively supporting our community on issues related to CBDCs and driving responsible innovation aligned with our strategic vision for instant end-to-end transactions”.

Arguing against “reinventing the wheel”, SWIFT claims the smart approach will be to pragmatically combine new solutions with existing infrastructure to derive maximum benefit.

SWIFT will thus undertake a deeper dive into CBDCs over the coming months via trials to see how its platform and new strategy for instant, frictionless payments could interact with the cross-border use of CBDCs.

“SWIFT is an integral part of the financial services infrastructure and will play a critical role supporting its members as CBDC begins to transform the landscape. We welcome this partnership and are eager to continue to drive responsible and valuable innovation together”, said Accenture’s Treat.

“As a co-operative that is neutral and currency agnostic, with reach across 11,000 institutions in more than 200 countries, and oversight by central banks globally, SWIFT is well placed to engage closely in the debate and any future evolution of money. We look forward to actively supporting our community on issues related to CBDCs and driving responsible innovation aligned with our strategic vision for instant end-to-end transactions”, Zschach said.

SWIFT intends to play both the role as a carrier of authenticated information about CBDC transactions and as a carrier of actual CBDC value in whatever form it is issued.

It remains to be seen if the firm will be able to reform its infrastructure to the point of competing against established distributed ledger technology companies such as Ripple or R3.

In 2019, Credit Suisse said “interbank payment systems such as SWIFT are old, inflexible, slow, and increasingly prone to cyberattacks at a time when banks are under tremendous pressure to cut costs and protect customer data from hackers, which blockchain could achieve.”

SWIFT had two years since those remarks to properly investigate blockchain and come out with an innovative product. That year, the firm, as part of a consortium, had announced a proof of concept to test reconciliation of databases for cross-border payments in real time. The solution, however, came with a catch: it required significant infrastructure overhaul for banks that had already invested in centralized solutions.

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