[NEWS] SWIFT to begin pilot testing of digital currency transactions from 2025

In 2025, central and commercial banks around the world will use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network to conduct pilot tests of digital currencies and assets. SWIFT announced on the 3rd.

This will be an important step in the ongoing integration of digital assets into the financial system.

Banks and asset managers have been considering tokenizing traditional assets such as bonds for several years.

Using digital units (blockchain-based tokens that usually represent a portion of the underlying asset) can remove the middlemen involved in many transactions, making them faster, cheaper and more efficient.

While blockchain is expected to be used in finance, digital assets have not been used in the broader market so far.

A CBDC (Central Bank Digital Currency) is a digital version of fiat currency that facilitates the trading of tokenized assets. Financial authorities are studying and understanding the technological advances that have made cryptocurrencies such as Bitcoin possible.

Working on digital currency payments

SWIFT, which plays a key role in global banking, has been working on pilot tests of both CBDC and tokenized assets.

Current stablecoin issuers, including Tether's USDT, are private companies. It is true that there is a risk of hacking and other unforeseen circumstances. Therefore, efforts will be accelerated to realize stable digital currency settlement by public institutions.

In March, SWIFT announced that it would launch a new platform to connect CBDC, which is currently under development, to the existing financial system.

Nick Kerigan, head of innovation at SWIFT, said in a statement, "There is now a call from the industry to move beyond the testing phase and see digital assets in action and counterparties paying for them with real cash. Next year, we will move to that phase, albeit in a controlled way."

Although the potential and expectations are great, market fragmentation is a hindrance, and few efforts are progressing outside of banks' own internal systems.

Similarly, central banks are experimenting with wholesale CBDC for cross-border settlements, but the scope is still small.

The latest SWIFT initiative combines different types of digital assets across different platforms.

"To successfully trade and settle tokenized bond transactions you need cash, which is where tokenized cash and wholesale CBDCs come in," Kerrigan said. "Transfers alone or payments alone are not enough. You need both."

Reference: Swift
Image: Shutterstock

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