Swift's Groundbreaking CBDC Experiments Pave the Way for Global Financial Innovation

Swift has successfully completed the largest global CBDC collaboration ever. Over six months, 38 central banks, commercial banks, and market infrastructures from around the world collaborated to design and test solutions in simulated CBDC networks and to provide input into future enhancements to Swift’s interlinking solution, the Swift connector.

The hands-on testing was done in a sandbox environment enabled by Kaleido and proved that the Swift connector can support various models and methods for interlinking digital networks with traditional market infrastructures.

Phase 2 Testing Enabled by Kaleido

In March 2023, Swift concluded an initial round of testing on its CBDC interoperability solution. In a sandbox enabled by Kaleido and leveraging Hyperledger FireFly, participants demonstrated that CBDC-initiated cross-border payments could plug into Swift’s enhanced platform exactly as real-time gross settlement (RTGS) payments do.

With central and commercial banks seeing “clear potential and value” in the Swift connector, Swift announced a second round of testing. Participants would expand from 18 to 38 and the group would study more complex use cases.

Phase 2 kicked off in July of 2023 to explore Digital Trade, Foreign Exchange (FX) Trade & Settlement, Delivery-versus-Payment (DvP), and Liquidity Saving Mechanism (LSM).

The testing environment, hosted by Kaleido, included seven simulated CBDC networks, a foreign exchange network, a digital trade network, a digital asset network, and a simulated CLS application, representing a mix of digital and traditional networks. Kaleido deployed Hyperledger FireFly, along with Hyperledger Besu, Fabric, and Corda as the underlying blockchain technologies requested by the industry workgroups.

When Swift announced Phase 2 results in April of 2024, over 125 users had tested 750+ transactions.

Key Findings and Results

Overall, the testing highlighted the critical role of interoperability in preventing market fragmentation and showed that it’s not only possible but beneficial to integrate CBDCs into global financial systems to create future-ready networks.

Phase 2 also returned clear findings on each of four use cases the group set out to test.

• Trade payments: The first experiment showed how CBDCs could be linked to digital trade networks. In simulated real-world scenarios like the tokenization of purchase orders, issuance of invoices, and automated payment execution, the group showed it was possible to automate trade payments with smart contracts and that this automation could enable 24x7 trade flows, reduce delays and fraud, enhance trust, and lower transaction costs.
• Foreign exchange: The second aimed to combine FX trade and settlement into a single step. The working group tested an International Foreign Exchange (IFX) Marketplace and Continuous Linked Settlement (CLS) Bank capabilities and each model was successful.
• Delivery-versus-Payment (DvP): The third use case investigated how the Swift connector could enhance interoperability between tokenization platforms by linking different CBDC networks to facilitate Delivery versus Payment (DvP). The sandbox setup included a tokenization platform for trading simulated tokenized bonds and it successfully demonstrated that the Swift connector could facilitate seamless DvP across platforms.
• Liquidity Saving Mechanism (LSM): The fourth explored how to address liquidity fragmentation across currencies and different platforms. Two approaches were considered but participants decided a solution wasn’t immediately necessary. Discussions highlighted various reasons for liquidity fragmentation, indicating a complex challenge beyond just technological solutions.

These Swift CBDC experiments demonstrated the technical feasibility and benefits of an interoperable CBDC network in a time when CBDC development is rapidly accelerating around the world.

For Kaleido, participation in the project is aligned with our founding goals—as it shows how blockchain can improve the way we live, work, and collaborate, and highlights the potential for well-executed technology to bring new levels of efficiency and trust to global markets.

Building a More Connected Digital Future

The Atlantic Council shows 134 countries are in some stage of CBDC development. This rapid adoption means that solutions are being built in silos and central banks are adopting diverse technologies with unclears standards. Efforts like Swift’s aim to show how we can connect these “digital islands” and prevent the fracturing of the digital economy.

Kaleido was proud to participate in this global collaboration and remains committed to driving innovations that make digital finance easier for nations, enterprises, and people to adopt around the world.

Our CBDC Sandbox makes it easier than ever for central and commercial banks to build fully-custom, wholly-owned CBDC solutions to test use cases and quickly move to production.

If you want to learn more about how Kaleido can help get your CBDC project off the ground, schedule a quick call with one of our solution architects.