According to a report published on May 19 by SWIFT regarding its experiments with the Bank for International Settlements, these CBDCs encompass economies that account for more than 90% of GDP worldwide.
CBDCs, or “digital equivalents of actual central bank money,” are getting a lot of attention right now, with a lot of that focused on how they can help achieve domestic policy goals. However, there is one potential weakness: their use across international borders.
SWIFT’s Chief Innovation Officer, Thomas Zschach, stated:
“Facilitating interoperability and interlinking between different CBDCs being developed around the world will be critical if we are to fully realize their potential. Today, the global CBDC ecosystem risks becoming fragmented with numerous central banks developing their own digital currencies based on different technologies, standards, and protocols.”
Fragmentation of CBDCs could result in digital islands
Nick Kerigan, Head of Innovation at SWIFT, argued that if nothing is done to rectify this fragmentation, it could establish “digital islands” all over the world.
“If left unaddressed, this fragmentation could lead to ‘digital islands’ springing up across the globe. Different systems and different CBDCs will need to be able to efficiently work together, or it will hamper the ability of businesses and consumers to make frictionless cross-border payments using CBDCs.”
Using a DLT-based CBDC network and a proven real-time gross settlement (RTGS) technology, SWIFT proved in 2021 that it could effectively facilitate an international transaction between two entities
This time, SWIFT is working with Capgemini to examine how it can interconnect the many domestic-based CBDC networks that are growing globally in order to make cross-border payments more smooth and frictionless.
