The results of SWIFT’s latest collaborative central bank digital currency (CBDC) sandbox experiments are in, demonstrating the use of CBDCs and other digital tokens across simulated digital trade, tokenized asset and FX networks, and payments.
For the last six months, SWIFT worked with 38 global institutions on the second phase of sandbox testing on its CBDC interlinking solution. This is one of the largest known CBDC experiments to date.
In this phase of sandbox testing, the team focused on demonstrating how SWIFT’s solution could be used in more complex use cases. These include simulated digital trade, tokenized asset and FX networks, as well as CBDCs for payments. Over the course of the project, over 125 sandbox users made more than 750 transactions.
“The experiments found that our interlinking solution has the potential to simplify and speed up trade flows, unlock growth in tokenized securities markets, and enable efficient FX settlement. And this, all while allowing financial institutions to make use of their existing infrastructure,” SWIFT wrote in a statement.
On the Delivery versus Payment (DvP) use case, SWIFT saw traction that will lead to its beta interlinking solution being enhanced to support DvP given the increasing market demand for on-chain cash for the settlement of tokenized assets. This exercise involved the interlinking of multiple asset and cash networks to facilitate DvP in a cross-border setting where the buyer and seller are in different CBDC networks.
“As we continue to develop the Swift connector, we will aim to support industry test initiatives around DvP use cases, which will provide valuable feedback to help develop a genuinely useful solution for the community,” according to the report.
Among the use cases that took collateral into account was the Liquidity Saving Mechanism, for which the opportunity cost was described as “driven by the need to maintain cash/collateral across multiple parties to enable settlement across multiple systems such as nostros, central counterparties (CCPs), custodians and CLS.”
Results and feedback showed that there was a consensus among the working group participants about the challenges presented by the fragmentation of liquidity between emerging digital networks. However, participants also observed that these digital networks currently lack maturity and scale. Due to the nature of the use case, the solution was a paper-based exercise.
The Swift team conducted additional bilateral discussions with a subset of participants to understand the need for exploring or building such a solution. There was a clear support for implementing netting capabilities at Swift Transaction Manager; however, this was seen as a medium-term rather immediate requirement.
“There are no immediate next steps for this particular use case. We will continue to explore this solution as a paper-based exercise this year. Swift is additionally funding research around liquidity optimization through payment tokens,” according to the report.
Trade payment and FX use cases also feature in the report.