Financial infrastructure firm SWIFT said on Wednesday that it has solved a major problem for central bank digital currency (CBDCs) adoption: interoperability between blockchains and traditional financial infrastructure.

In brief

  • SWIFT says it is ready to implement a CBDC cross border payment system.
  • The development shows that central banks will soon roll-out nation-backed fiat currencies.
  • Human rights concerns about CBDC capabilities remain.

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This development is a clear indication that central banks are serious about mapping out the infrastructure required to roll out national infrastructure backed by countries, according to Kenneth Goodwin, Blockchain Intelligence Group’s director of regulatory and institutional affairs.

SWIFT’s plan has been eight months in the making.

Goodwin, who also works with in economic think thank Project Hamilton and the Boston and NY Federal Reserves – said SWIFT’s scale adds weight to its blueprint.

The central banks are basically saying — these governments are saying, ‘How do we have the right network infrastructure that’s going to prepare us…to actually do these executions on a digital platform that’s very secure?” Goodwin said. “And that’s where SWIFT comes into play.

One reason for the delay in plans is uncertainty about the technology, according to Goodwin: the prickly choice between incorporating CBDCs with SWIFTs’ existing payment rails or competing against a crypto-native competitor such as Bitcoin’s Lightning Network.

The Bitcoin Lightning Network is a layer-2 payment protocol built on top of Bitcoin’s (and Litecoin) core blockchain. It is a tool open for public or private services. It taps the newly-created Taproot-based Taro protocol for issuing assets such as stablecoins — and potentially CBDCs — on the blockchain, then utilising Lightning to execute transactions.

In a statement, SWIFT said it has solved a vexing issue hindering CBDC adoption.

SWIFT has successfully shown that Central Bank Digital Currencies (CBDCs) and tokenised assets can move seamlessly on existing financial infrastructure – a major milestone towards enabling their smooth integration into the international financial ecosystem.

The firm conducted two distinct experiments which found that digital assets can be interoperable with their traditional financial counterparts through the network.

SWIFT is being used to connect over 11,500 banks and funds across 200 countries.

When it comes to establishing a global CBDC system, “it all has to do with infrastructure, but it also has to do with familiarity,” Goodwin added.

A Cypherpunk’s manifesto

While tokenisation of fiat currencies is in full swing, human rights concerns about central-bank-governed financial technology remain. The Head of the Bank of International Settlements is on record stating that CBDC technology will allow for total monetary control via programmability.

We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today. The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.

As Bitcoin and financial technology steamrolls years ahead of mainstream political discourse, dialogue about intended and unintended consequences of government-backed fintech is on a collision course with core cryptocurrency tenets. Regardless, nation-state fiat currencies are one step closer to realisation, and will offer similar services provided by private stablecoins such as USD Tether (USDT) and BUSD.

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