CBDC and Beyond: SWIFT’s Second Sandbox Connector Tests Proclaimed a Triumph

The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a messaging network, has unveiled the results of the second round of sandbox testing for its central bank digital currency (CBDC) interlinking solution, known as the connector. The project examined four different use cases, with only a few involving CBDC, as stated in the report released on the test outcomes. The experiments included testing digital trading with instant settlement using smart contracts and linking tokenization platforms to enable immediate delivery versus payment. Additionally, SWIFT collaborated with financial infrastructure firm CLS Group to demonstrate the connector’s ability to connect existing foreign exchange infrastructures using CBDC. The fourth use case, which focused on reducing liquidity fragmentation across platforms using Liquidity Saving Mechanism algorithms, was described as a theoretical exercise accompanied by bilateral discussions. To showcase interoperability, the project employed R3’s Corda, as well as the Hyperledger Fabric and Besu blockchains. SWIFT highlighted that traditional financial solutions will continue to coexist and require interconnectivity. Following the completion of the sandbox experiments, SWIFT intends to further develop the beta version of its connector, concentrating on implementing smart contracts across networks, securely transferring tokens across networks, and preserving data and programmability of tokens across networks. Over 125 users participated in the sandbox’s second phase, conducting more than 750 simulated transactions to illustrate complex use cases for the SWIFT CBDC interlinking solution. Participants included ANZ, Citibank, Deutsche Bank, DTCC, HSBC, Société Générale, Standard Chartered, Sumitomo Mitsui, Shanghai Commercial & Savings Bank, and at least seven central banks or monetary authorities. The initial phase of testing was announced in September, with the first phase concluding in March 2023. SWIFT is actively exploring future use cases and has been concurrently experimenting with settlement using a unified ledger model, aligning with the CBDC sandbox’s focus on utilizing existing technology, including SWIFT’s own solutions.