Financial messaging system SWIFT (Society for Worldwide Interbank Financial Telecommunications) has laid out its blueprint for a global central bank digital currency (CBDC) network following an 8-month experiment on different technologies and currencies. The trial, which involved France and Germany's national central banks as well as global lenders like HSBC, Standard Chartered and UBS, looked at how CBDCs could be used internationally and even converted into fiat money if needed. Around 90% of the world's central banks are now using, experimenting, or looking into CBDCs. Most do not want to be left behind by Bitcoin and other cryptocurrencies, but are grappling with technological complexities.[1]
SWIFT's head of innovation said its trial, which will be followed by more advanced testing over the next year, resembled a bicycle wheel where 14 central and commercial banks in total connected spoke-like into its main hub. The idea is that once scaled-up, banks may need only one main global connection, rather than thousands if they were to set up connections with each counterpart individually. "We believe that the number of connections needed is much fewer," he said. "Therefore, you are likely to have fewer breaks (in the chain) and you are likely to achieve greater efficiency."
The trial also tested different underlying CBDC technologies known as Distributed Ledger Technologies. The use of various technologies has also been raised as a potential hurdle for rapid global adoption. There was a separate trial too carried out alongside Citi, clearing house Clearstream and Northern Trust on 'tokenised' assets; traditional assets like stocks and bonds transformed into digital tokens that can then be issued and traded in real-time.
Some countries such as the Bahamas and Nigeria already have CBDC's up and running. China is well advanced with real-life trials of an e-yuan, while central bank umbrella group, the Bank for International Settlements, has also been running cross-border trials. SWIFT's main advantage though is that its existing network is already usable in over 200 countries and connects more than 11,500 banks and funds. The Belgium-based firm has gone from being virtually unknown outside banking circles to a household name this year after it cut most of Russia's banks off from its network as part of the West's sanctions for the country's invasion of Ukraine.
SWIFT said that kind of move could also happen in a new CBDC system but doubted whether it would stop countries joining one. "Ultimately what most central banks are looking to do is to provide us with a CBDC for the people, the businesses and the organizations in their jurisdiction. So, a solution that's fast and efficient and that gains access to as many other countries as possible would seem to be an attractive one."
It has been over seven (7) years ago that SWIFT had issues with cyber security. In 2015 SWIFT was hit with the theft of $81 million from the central bank of Bangladesh. Security experts then reported the following year fraudulent SWIFT interbank messages were sent highlight the dangers facing any financial institutions that attempt to implement real-time payments or automated clearinghouse systems. The attacks, which occurred on 21 January 2015, resulted in the theft of $12.2 million from Banco del Austro, or BDA, in Ecuador. The theft was revealed via a lawsuit filed by BDA against San Francisco-based Wells Fargo on 28 January of the same year. Shortly thereafter, a Vietnamese bank recently revealed it stopped a plot to transfer $1.36 million out of its accounts, via the interbank SWIFT messaging system, in the fourth quarter of 2015.[2]
Has SWIFT shored up its cyber security efforts? Not hearing of any attacks in these past years, says the answer is yes. But with a push toward global e-commerce, SWIFT will always remain on the hacker’s radar screens.
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[1] https://www.reuters.com/technology/swift-sets-out-blueprint-central-bank-digital-currency-network-2022-10-05/
[2] https://www.bankinfosecurity.com/another-swift-hack-stole-12-million-a-9121
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