Explained: Interlinking CBDCs and their potential impact
SWIFT, the world’s dominant international bank wire network, plans to support a new type of Central Bank Digital Currency, a so-called interlinking CBDC. Three central banks are beta testing interlinking CBDCs, along with 30 other financial institutions. Interlinking CBDCs will use the SWIFT network’s interoperability system, which is currently in the second phase of beta testing. Through interlinking CBDCs, as opposed to forex or over-the-counter (OTC) currency transactions, SWIFT hopes to facilitate the direct conversion of value between fiat and without the need for third-party custody of funds. In contrast to the initial versions of CBDCs, interlinking CBDCs will allow SWIFT network participants to execute swaps and other currency transfers seamlessly over SWIFT’s messaging system. Central banks experimenting with SWIFT’s beta version of interlinking CBDCs include the Hong Kong Monetary Authority and the National Bank of Kazakhstan. Other central banks using sandboxed (nonfunct...