Digital road set for central banks

Financial messaging system Society for Worldwide Interbank Financial Telecommunication has laid out its blueprint for a global central bank digital currency network following an eight-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 (0005), Standard Chartered and UBS, looked at how such currencies could be used internationally and even converted into fiat money if needed.

Around 90 percent of the world's central banks are now using, trialling or looking at such currencies. Most don't want to be left behind by bitcoin and other cryptocurrencies, but are grappling with technological complexities.

SWIFT's head of innovation Nick Kerigan 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," Kerigan 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 central bank digital currency 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 "tokenized" 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 central bank digital currencies 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.