Everybody in the decentralized world thought there would be no need of banks once the blockchain comes. And people even predicted the demise of the SWIFT like services. And then things slowly started to change for the centralized banking system. And now they are adapting to the blockchain.
SWIFT has started its own chain where they are planning to interlink the banks in the US first then banks outside the US and then international interoperability would be achieved. All of this would require tons of pilot updates and they have already started.
SWIFT has been making use of the ChainLink for connecting the banks in their CBDC project. They are also making use of the DTCC and other blockchain tech in order to collaborate with services like Visa and Mastercard in the coming months.
Let's talk about What is SWIFT CBDC Interlinking Project and how it is going to help us as a consumer and the international citizens who happen to do the cross border payments.
SWIFT - Inter-bank Messaging Protocol
SWIFT is one of the oldest method for the international and domestic banks to connect with each other. And they are using this ever since the internet has managed to connect the banks with each other. They have used the old protocols prior to blockchain with some limits and scaling issues.
As the blockchain came into the existence, things have started to change and the SWIFT was forced to adopt the blockchain. During this process they were forced to collab with the other interoperable chains and also the Visa and Mastercard was used as well. Which had made the SWIFT take the blockchain seriously as CBDCs are arriving too.
Interbank Connectivity using ChainLink
Chainlink was used to connect the banks in domestic and the international connection. And for that there was also services used like Visa, DTCC and others. And to extend this with real world pilot there was testing going on with more than 30 banks so far. And out of which many have successfully validated the interlinking of the banks.
Bank of Kazhaksatan, Hong Kong Monetary Authority (HKMA) and also few unlisted banks of other nations were taking part in this test and they have managed to test out the interlinking between the international pilot test. Which goes to show that once the CBDCs of most of the nations are out it'd be easier to roll out CBDC interlinking.
130 Nation Interoperability Sandbox
There are 10 or so nations rolling out the CBDC in the year 2024 and more may join or are already rolling out the CBDC as they learn from others of it's safety and the security. This may also put on pressure on the SWIFT as there are more nations to test out and each of them would be releasing slowly.
Which goes to show that during this test phase if there are issues, the traditional means of transfer would continue. So far only 9 countries tested positively in the sandbox which means there would be more need before the cross border sandbox would be happening and there would be more banks coming out.
SWIFT would be making it easier and removing a lot of middle dwellers as there is a blockchain involved. Hopefully it would reduce the forex conversion cost in upcoming future.
SWIFT is one of the oldest body working in the sector of the interbanking and the interoperable cross border money transfer system. And this blockchain adoption is not going to happen overnight for them. So they have to test it in phases within the sandbox before going live. We would be keeping an a eye on how SWIFT works with CBDC cross border transfers.