- May 18, 2024
- Posted by: [email protected]
- Category:
Wen Yang, President of SWIFT China, recently discussed the challenges and solutions for achieving cross-border interoperability of central bank digital currencies (CBDCs). In an interview with the 21st Century Business Herald, Yang highlighted the fragmentation in CBDC systems due to diverse technological paths and standards among different economies. He emphasized SWIFT’s efforts to bridge these technical gaps.
According to Yang, over 130 economies are now exploring CBDCs, with nearly 70% of central banks expecting to issue them within the next decade. However, the rapid pace of development could create “data silos” where systems cannot communicate effectively. “Currently, there are significant differences in technological paths and standards, including protocols, among economies, which presents a ‘fragmentation’ challenge and leads to ‘data silos’,” Yang explained.
To date, 11 countries have fully launched their CBDCs, with others in advanced stages of development. China’s digital yuan has been implemented in various applications, while the European Central Bank is preparing for a digital euro. In India, commercial banks handle one million digital rupee transactions daily across the country.
SWIFT launched the second phase of its CBDC sandbox in July 2023, focusing on complex use cases in digital trade, digital assets, and foreign exchange networks for CBDC payments and settlements. “The project lasted six months and involved 38 financial institutions from around the world, including regulators, commercial banks, and market infrastructures, involving applications of seven different CBDCs,” Yang noted.
Yang stressed the importance of interoperability in cross-border CBDC use. The sandbox results supported SWIFT’s proposal to simplify digital transactions while enabling financial institutions to utilize their existing infrastructure. “Tests on the interaction between digital trade platforms and CBDC networks using Distributed Ledger Technology (DLT) and smart contracts have proven technically feasible for automating trade payments,” he stated.
SWIFT plans to expand its CBDC connector solution to test more extensive use cases in a comprehensive environment. This includes enhancing support for on-chain forex settlements and cross-border payments, addressing growing market demands. Through these initiatives, SWIFT aims to ensure that diverse CBDC systems can operate seamlessly together, fostering global financial integration.
