Wen Yang, the President of SWIFT China, recently provided insights on the challenges and solutions for interoperability in cross-border central bank digital currency (CBDC) systems. In an interview with 21st Century Business Herald, Yang discussed the fragmentation in CBDC systems caused by different technological paths and standards among economies. He highlighted SWIFT’s efforts to bridge these technical gaps.
The report states that more than 130 economies are currently exploring CBDCs, with nearly 70% of central banks expecting to issue them within the next decade. However, this rapid development could lead to “data silos” where systems are unable to communicate with each other. Yang pointed out the significant differences in technological paths and standards, including protocols, among economies, which pose a challenge of fragmentation and data silos.
Yang mentioned that 11 countries have already fully launched their CBDCs, while others are in advanced stages of development. China’s digital yuan has been implemented in various applications, the European Central Bank is preparing for a digital Euro, and commercial banks in India handle one million digital rupee transactions daily.
SWIFT launched the second phase of its CBDC sandbox in July 2023, focusing on complex use cases in digital trade, digital assets, and foreign exchange networks for CBDC payments and settlements. The project involved 38 financial institutions from around the world, including regulators, commercial banks, and market infrastructures, and included applications of seven different CBDCs. Yang emphasized the importance of interoperability in cross-border CBDC use and stated that the sandbox results supported SWIFT’s proposal to simplify digital transactions while allowing financial institutions to utilize their existing infrastructures.
Tests on the interaction between digital trade platforms and CBDC networks using Distributed Ledger Technology (DLT) and smart contracts have proven technically feasible for automating trade payments, according to Yang. SWIFT plans to expand its CBDC connector solution to test more extensive use cases in a comprehensive environment, including enhancing support for on-chain forex settlements and cross-border payments to meet growing market demands.
