Insight & Analysis

SWIFT stakes a claim on digital future

Published: Oct 2022

As Sibos – the annual conference of SWIFT – opened this week in Amsterdam, the cooperative positioned itself as a connector of ‘digital islands’ and innovator for the world’s financial infrastructure by publishing the results of two successful experiments.

It is common at any fintech conference for someone to predict the demise of SWIFT and the correspondent banking system. Cross-border payments are a pain point for financial institutions and treasurers alike, and the detractors argue there must be a better way to move money across the globe. Surely, they say, there must be a way that doesn’t rely on a long chain of banking relationships, creaking infrastructure and messages that can take days to be received.

Distributed ledger technology and digital currencies may be the answer, and many could be forgiven for thinking that these latest technologies could make SWIFT – and the old way of doing things – obsolete.

However, SWIFT has kept ahead of the latest trends, and has demonstrated its success with two recent experiments. SWIFT made the announcement a few days before Sibos, its annual conference which was held in Amsterdam – the first time the conference has been face-to-face since the pandemic. And the experiments mean that SWIFT, which connects 11,500 financial institutions and four billion accounts across 200 countries and territories, is positioning itself as the connector and bridge for the financial infrastructure for now – and the future.

SWIFT reported on two separate experiments: one on central bank digital currencies (CBDCs), and another on tokenised assets. They are on trend with these developments and the results of the two experiments show that it is possible for central bank digital currencies and tokenised assets to be used cross-border on the existing infrastructure. Or, in other words, cross-border innovation is possible without having to completely reinvent the wheel.

According to the Bank of International Settlements, nine central banks have already gone live with their own digital currency. These, however, have been focused on the domestic market and when it comes to connecting them for cross-border transactions, they are plagued with different standards and protocols. SWIFT has adopted the role of a connector of these ‘digital islands’ and conducted experiments to interlink the systems and achieve interoperability between the networks.

With Capgemini, SWIFT achieved CBDC-to-CBDC transactions between different networks as well as fiat-to-CBDC flows, thus demonstrating that SWIFT can be the single gateway for cross-border digital networks in the future.

Meanwhile, the tokenisation of assets is another major trend that enables all kinds of assets to be represented and exchanged digitally, making assets that are currently illiquid – such as works of art – liquid. Also, with tokenisation, it is possible to fractionalise the assets so that they can be broken down into smaller parts and allow more people to have a stake in a masterpiece, for example.

These tokenisation technologies have also been developed in isolation and may or may not be compatible with the existing infrastructure. SWIFT notes that these tokenised assets need to coexist with traditional assets as the market players adapt to the latest technologies. And with its experiments, SWIFT demonstrated that its infrastructure could be the connector between multiple types of tokenisation platforms. It explored – with Northern Trust, Clearstream, Citi and SETL – 70 scenarios of market issuance and secondary market transfers of tokenised bonds, equities and cash and was successful as being the single access point. This continues SWIFT’s existing position as the access point for securities players for the post-trade settlement of traditional assets.

Commenting on these two separate experiments, Tom Zschach, Chief Innovation Officer at SWIFT, said: “Digital currencies and tokens have huge potential to shape the way we will all pay and invest in the future. But that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together. We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a major step towards unlocking the potential of the digital future. For CBDCs, our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway, ensuring the instant and smooth flow of cross-border payments.”

And on the tokenisation experiment, he said, “Tokenisation has great potential when it comes to strengthening liquidity in markets and increasing access to investment opportunities, and SWIFT’s existing infrastructure can ensure these benefits can be realised at the earliest opportunity, by as many people as possible.”

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