Swift CBDC sandbox
CLS collaborated with Swift in the second phase of its CBDC sandbox, demonstrating how netting and settlement of cross-currency payments could be designed in a CBDC world.
As CBDC growth accelerates, there remains a significant risk of fragmentation at the global level. In recent years Swift has been investigating whether and how it can enable the global CBDC ecosystem as part of its strategy to deliver instant and frictionless cross-border transactions.
The multi-phase CBDC sandbox experiment demonstrated that Swift can enable cross-border transfers by connecting CBDCs on different networks with one another as well as with fiat currencies. This second phase of sandbox testing explored more complex use cases, using Swift’s solution to connect and orchestrate transactions across simulated digital trade networks and tokenized asset and FX networks, using CBDCs for payments.
The CLS-inspired settlement system
CLS partnered with Swift on the foreign exchange use case to help design a settlement system similar to CLS. Sandbox participants wanted to explore an approach that builds on the existing CLS ecosystem structure and leverages the capabilities of a CLS-like settlement engine to mitigate settlement risk for cross-CBDC FX settlement with similar protection as for fiat currency.
The experiment successfully demonstrated how standard matching and netting can bring material liquidity optimization. Netting capabilities embedded into the ‘CLS processing engine’ significantly reduced the amount of liquidity needed to settle FX transactions. The experiment also explored the possibility of multiple settlement cycles to strike a balance between atomic/instant settlement and settlement and liquidity optimization (‘molecular settlement’).
What comes next?
CLS’s collaboration with Swift and other key industry players demonstrates our commitment to exploring innovative technologies that reduce risk and increase efficiency while also meeting high standards of resilience.
We will continue to engage with our community and the market to gather feedback on the Swift experiment as well as to explore other potential opportunities for innovative collaboration.
Experiment set-up of the CLS-inspired settlement system
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