Connecting digital islands
Swi CBDC sandbox project – Phase 2
Results report
March 2024
Contents Executive summary 3
The business context 5
The project 6
Use case 1: Trade payments 9
Use case 2: Foreign exchange 11
Use case 3: Delivery-versus-Payment (DvP) 16
Use case 4: Liquidity Saving Mechanism (LSM) 19
Key findings 21
Conclusion and next steps 22
Acknowledgements 23
2
Swi CBDC sandbox project – Phase 2
Executive summary
CBDC development is acceler-
ating, but action is needed to
achieve interoperability
Interest in Central Bank Digital Currencies
(CBDCs) continues to grow. According to
the Atlantic Council tracker, more than 130
countries are now exploring a CBDC – and
research by OMFIF has found that almost
70% of central banks expect to issue a
CBDC within the next decade. But as the
development of CBDCs gathers pace,
dierent central banks are using a variety of
technologies and standards. As such, there’s
a risk that in the future, the use of CBDCs
by businesses and consumers could be
hindered by the existence of unconnected
‘digital islands’.
Against this backdrop, Swi has been
investigating whether and how it can enable
the global CBDC ecosystem. In 2021, we
published the results of a first round of
experiments that showed how Swi could
enable interoperability between CBDCs.
Further experiments in 2022 demonstrated
a new interlinking solution for connecting
CBDC networks and existing payment
systems. We opened this up to testing by
the Swi community through our first phase
of sandbox testing, with results published
in March 2023. Following that, we released
an enhanced beta version of our connector
solution, tested with three central banks.
Our Phase 2 sandbox project is
one of the largest global CBDC
collaborations ever
In July 2023, we launched a second phase
of our CBDC sandbox project to build on the
learnings from Phase 1 and introduce more
complex use cases. The project – which is
the focus of this report – was carried out
over six months, with participation from 38
central banks, commercial banks and market
infrastructures from around the globe.
The project included two streams of work.
During the course of 20 collaborative
working group meetings, an average of 60
representatives from participating institutions
discussed use cases, experiment designs
and potential solutions, as well as providing
input on the further development of Swi’s
interlinking solution, the Swi connector.
Once the design for each use case had been
approved, participants were able to carry out
hands-on testing of the resulting solutions in
a sandbox environment.
The Phase 2 sandbox explored
more complex use cases
Four dierent use cases were explored:
(1) Digital Trade; (2) Foreign Exchange (FX)
Trade & Selement; (3) Delivery-versus-
Payment (DvP); and (4) Liquidity Saving
Mechanism (LSM). In total, over 125 users
tested 750+ transactions in the sandbox
environment.
Use case 1: Interoperability was
achieved between digital trade
platforms and CBDC networks
The first use case set out to demonstrate
how digital trade networks could be
interlinked with CBDCs. The Swi connector
was used to facilitate automated trade
payments – in other words, payments that
are completed programmatically, alongside
the transfer of assets, rather than manually.
Using a simulated digital trade network,
we simulated real-world trade scenarios
including the tokenisation of purchase
orders, issuance of invoices, and automated
payment execution. Smart contracts were
used to ensure that payment events were
triggered automatically once trade conditions
had been met.
The experiment demonstrated that it
was technically feasible to automate
trade payments using distributed ledger
technology (DLT) and CBDC networks.
Automating pre-approved payment
workflows once certain conditions had been
met meant that trade flows could potentially
be automated on a 24x7 basis. Participants
also highlighted that the solution could help
to reduce delays in global trade, reduce fraud
risk and improve trust among parties, as well
as significantly reducing transaction costs.
Use case 2: The Swi connector
successfully enabled two new
approaches to FX trade and
selement
The goal of the second use case was
to explore the role the Swi connector
could play in foreign exchange – namely in
combining FX trade and selement
into a single step.
The working group shortlisted two
models for sandbox experiment. The first
of these involved developing a conceptual
International Foreign Exchange (IFX)
Marketplace to explore how CBDCs issued
in dierent jurisdictions could be traded and
seled on one network. The second involved
exploring how the capabilities of CLS could
be used to mitigate selement risk for
cross-CBDC FX selement.
Our Phase 2 sandbox
project is one of the
largest global CBDC
collaborations ever.
3
Swi CBDC sandbox project – Phase 2
Both models successfully fulfilled the
requirements set out by the working group.
The IFX Marketplace model showed how
CBDCs issued in domestic markets could be
escrowed, wrapped in rules if needed, and
reissued on an external network through the
Swi connector. The CLS-inspired selement
system, meanwhile, was able to demonstrate
how the CLS-inspired neing and selement
engine could add value to the FX market,
facilitating neing and selement via CBDCs.
Use case 3: The Swi connector
achieved atomic selement (DvP)
across digital token platforms
The third use case explored how the Swi
connector could address the current lack
of interoperability between tokenisation
platforms. The focus was on interlinking
asset networks with dierent CBDC networks
to facilitate DvP.
The sandbox set-up included a tokenisation
platform, which supported the buying
and selling of simulated tokenised bonds,
alongside CBDC networks. A DLT and smart
contract layer was used to maintain records
of transactions. During the experiment,
participants executed DvP scenarios, with
smart contracts used to ensure that payment
events could occur atomically.
By simulating real-world DvP scenarios, the
experiments successfully demonstrated that
the Swi connector could facilitate atomic
DvP across the platforms. The experiment
also focused on the interactions between
trade participants through customised
dashboards to optimise ease of use in trade
and payment processes.
Use case 4: We also explored how
LSM algorithms could address
liquidity fragmentation
The goal of the fourth use case was to
explore models which could reduce the
fragmentation of liquidity across dierent
currencies and platforms. The working group
discussed two approaches: the use of smart
contract-enabled payment tokens, and
the use of LSM algorithms to orchestrate
transactions between digital networks.
For the laer approach, the working group
explored the potential of implementing
a neing algorithm at Swi Transaction
Manager to orchestrate transactions
between digital networks.
The solution in this case was a paper-
based exercise, accompanied by bilateral
discussions with a subset of participants.
Participants welcomed the prospect
of implementing neing capabilities at
Swi Transaction Manager; however, this
was not seen as a pressing need. While
working group participants agreed that
the fragmentation of liquidity between
digital networks presents a challenge, the
discussions revealed that there are multiple
reasons for why financial institutions
choose to fragment their liquidity.
The participants agreed
upon three principles for
interoperability
The experiments made it clear that, while
interlinking cannot be achieved through a
single model, the Swi connector is able
to support dierent emerging interlinking
models. Participants agreed upon the
following three principles for interoperability:
1. Interlinked networks. It is essential to
ensure native technical interoperability
between dierent digital networks. There
is an opportunity to achieve interlinking
by leveraging the industry’s investment
in ISO 20022 messaging as the common
language for payments across new and
established networks.
2. Single point of access. A single point
of access provided by Swi can enable
institutions to reuse their existing
channels, reach new networks, and bring
down participation costs.
3. Co-existence. With new digital networks
expected to co-exist with traditional
market infrastructures, seamless
interactions will be needed between
the new and the old.
Our collaborative innovation in
this space is set to continue
Following these experiments, we plan to
continue collaborating with our global
community in 2024 to further drive
innovation. One key initiative will be to
continue enhancing the Swi connector to
support additional Payment-versus-Payment
(PvP) and DvP use cases, while adding
functional enhancements and new technical
capabilities. Other key areas of focus will
include implementing smart contracts on
digital networks based on dierent DLT
technologies; cryptographically locking
and releasing tokens; and moving tokens
between networks.
We further aim to develop a productisation
roadmap for the Swi connector, based on
market developments and readiness.
In parallel, we plan to demonstrate how
the Swi connector could interlink other
networks, such as bank-led tokenised
deposit networks. And, as ever, we will
continue to support community eorts
to further innovate in this area, both by
participating in industry initiatives and by
contributing to network capabilities.
The Swi connector
is able to support
dierent emerging
interlinking models.
4
Swi CBDC sandbox project – Phase 2
The business context
In recent years, it has
become increasingly
clear that for CBDCs to
be used cross-border,
interoperability will
be critical.
Interest in Central Bank Digital Currencies
(CBDCs) has grown exponentially in recent
years, with more than 130 countries now
exploring a digital currency, according to
the latest Atlantic Council tracker. To date,
11 countries have fully launched a CBDC,
and others are in advanced phases of
development. Almost 70% of central bank
respondents to OMFIF’s 2023 Future of
Payments survey expect to issue a CBDC
within the next decade. China’s digital yuan
has passed $250 billion in transactions within
one-and-a-half years of its launch, while the
ECB is now in the preparation phase for a
digital euro. In India, meanwhile, commercial
banks are processing a million transactions
per day throughout the country for the
digital rupee.
Growing fragmentation
While the rise of CBDCs is accelerating, there
remains a significant risk of fragmentation at
the global level. Central banks are developing
their own digital currencies and are seeking
to solve dierent use cases, with dierent
technologies, standards, and protocols. If
such fragmentation persists, it could lead
to unconnected ‘digital islands’ springing
up around the world, presenting barriers to
businesses and consumers aempting to
make international payments using CBDCs.
Swi’s CBDC journey to date
In recent years, it has become increasingly
clear that for CBDCs to be used cross-
border, interoperability will be critical. Swi
has therefore 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.
Our 2021 whitepaper, ‘Exploring central
bank digital currencies: How they could
work for international payments’, set out
the results of our first round of experiments.
This work showed how Swi could
provide interoperability, and, in doing so,
demonstrated how we could solve for the
Bank for International Selement (BIS) multi-
CBDC Model 1 of enhanced compatibility.
This first round of experiments, together
with other multi-CBDC projects by the BIS
Innovation Hub and others, proved invaluable
in informing the next phase of our work.
Developing the Swi
connector solution
Building on this, our 2022 experiments
demonstrated a new interlinking solution
which could be used to connect CBDC
networks and existing payments systems for
cross-border transactions. Our teams built
a simulation of Swi’s enhanced platform
and an experimental connector that, when
combined, can link together CBDC networks
at the technical level, thus solving for the BIS
multi-CBDC Model 2. You can find out more
about our 2022 experiments here.
Following a first phase of community
sandbox testing with 18 central and
commercial banks that culminated in our
March 2023 report, Swi commied to
developing a beta version of its connector
solution, with participants recognising
the solution’s ‘clear potential and value’. In
particular, the risk of cyberaacks and fraud
meant that it was crucial to develop robust
security protocols within the CBDC networks
and the Swi connector. The beta solution
was released in mid-2023, with three central
banks integrating the solution with their
own infrastructures for direct testing.
Swi’s Phase 2
sandbox project
Building on the learnings of sandbox
Phase 1 – and following demand from
the community to continue expanding the
scope and complexity of the use cases –
Swi kicked o a second phase of CBDC
sandbox experiments in July 2023 with the
key objective of introducing more complex
and sophisticated use cases for multi-
CBDCs, as well as integration with
existing payment systems.
This project was one of the largest global
collaborations carried out on CBDCs to
date: an extensive exercise carried out over
six months with 38 financial institutions
participating from across the globe,
representing a diverse mix of central banks,
commercial banks and market infrastructures.
The following report sets out the key
results and conclusions from our Phase 2
sandbox experiments.
5
Swi CBDC sandbox project – Phase 2
The project
The collaborative
working groups
The project was divided into two streams of
work – a series of working group sessions,
and hands-on exploration in a sandbox
environment. We ran 20 working group
sessions with an average of 60 participants
in each session. The sandbox infrastructure
was then provisioned for the 38 organisations
involved for a period of four months. See
Figure 1 for the list of participants that have
agreed to be named in this report. As part
of the project, we onboarded 125 users from
the participating organisations to carry out
testing in the sandbox.
Collaborative innovation in action
Participants met regularly to discuss use
cases and potential solutions in dedicated
working group sessions, which were divided
into business and technical sessions
for each use case. During the sessions,
representatives from all the participating
institutions reviewed key design options and
decisions, roles and responsibilities, and
implementation considerations for each of
the use cases.
All participants reviewed the key elements
of the Swi connector as the interlinking
solution. Once a use case had been locked
in with an approved design, the Swi team
implemented the solution in the sandbox
for the participants to carry out testing
and validation, and provide feedback for
future consideration.
A diversity of perspectives
The working groups included a diverse
range of institutions from across the globe,
representing a variety of policies, regulatory
frameworks, AML standards and counter-
terrorism requirements. They also included a
strong mix of central banks, commercial and
regional banks, and market infrastructures.
The working groups played a critical role in
exploring and discussing the implementation
of potential solutions in a collaborative
manner, while also taking into consideration
the dierences between participants.
Meanwhile, the ‘show and tell’ approach,
with hands-on testing of the solution in the
sandbox, provided an additional practical
element to the project.
The sandbox experiments
A sandbox environment was provided so
that participants could carry out meaningful
hands-on testing of the solutions explored
during the working groups sessions.
The environment – hosted by Kaleido,
a blockchain and digital assets platform –
included seven simulated CBDC networks,
a foreign exchange network, a digital trade
network, a digital asset network, and a
simulated CLS application, representing
a mix of digital and traditional networks,
as shown in Figure 2 on page 7.
Leveraging their experience in helping to
build the first version of the connector
solution, which was described in our March
2023 report, Swi partnered with Capgemini
to enhance the beta version of the Swi
connector solution. The enhanced solution
needed to support dierent use cases
and payment types across a multitude of
technologically dierent networks, including
established payment rails.
The enhanced version of the Swi connector
was integrated into the sandbox environment
setup, along with the Swi Transaction
Manager simulator. User interface screens
were also built to enable the participants to
test and explore the use cases.
Once integrated into the environment, the
Swi connector and Swi Transaction
Manager simulator were used to interlink
the various simulated networks and facilitate
payment flows between them for each of
the use cases. Participants were able to test
transactions between dierent networks
and share their feedback and findings
with Swi. During testing, the participants
completed 750+ transactions in the sandbox
environment across our use cases.
Figure 1: Named sandbox participants
1
1
Note that only participants that agreed to be named in this report are listed.
Central banks
Australia
Czechia
France
Germany
Singapore
Taiwan
Thailand
Commercial banks
ANZ
Citibank
DBS Bank Limited
Deutsche Bank
HSBC
Hua Nan Commercial Bank, Ltd.
Intesa Sanpaolo
NatWest Group
Santander Bank
Société Générale
Standard Chartered
Sumitomo Mitsui Banking Corporation
The Shanghai Commercial & Savings Bank (Taiwan)
The Standard Bank of South Africa
United Overseas Bank
Westpac Banking Corporation
Financial market infrastructures
CLS Group
DTCC
6
Swi CBDC sandbox project – Phase 2
The technologies employed
The experiments included a mix of
blockchain and distributed ledger technology
(DLT) in order to demonstrate how the Swi
connector’s technology-agnostic capabilities
could provide an interoperability solution.
These networks were randomly deployed on
a combination of three private permissioned
DLT platforms, as outlined below.
– Corda: R3’s Corda is a distributed ledger
platform developed by R3, designed for
businesses to build interoperable, secure,
and private decentralised applications
(CorDapps) for various industries, with a
primary focus on the financial services
sector. In the sandbox, four CBDC
networks were simulated on Corda: SGD,
THB, TWD and HKD.
– Hyperledger Fabric: Hyperledger Fabric
is a permissioned blockchain framework
and is part of the Hyperledger project
hosted by the Linux Foundation. In the
sandbox, five networks were simulated
on Fabric: AUD, ZAR, EUR, International
Foreign Exchange Marketplace (IFX), and
a simulated Digital Trade Network.
– Hyperledger Besu: Besu is an open-
source Ethereum client developed under
the Hyperledger project hosted by the
Linux Foundation. In the sandbox, one
network was simulated on Besu: the
Digital Asset Network.
Each network consisted of DLT nodes, o-
chain applications and a user interface for
testing. The o-chain applications, which
included a bank application backend, trade
application backend, user interface (UI)
application and security services, were
deployed on a Kubernetes cluster.
Transaction
Manager simulator
ZAR
CBDC
Digital Asset
Network
AUD
CBDC
HKD
CBDC
SGD
CBDC
EUR
CBDC
TWD
CBDC
Trade
Network
THB
CBDC
IFX
Network
Depository Regulator
Node
Sell Side
Buy Side
DTP
Operator
Customs
Seller
Carrier
Buyer
ISO 20022
Swi connector
Bank
Regulator
Figure 2: An overview of the sandbox environment:
simulated networks and currencies
Transaction
Manager simulator
ZAR
CBDC
Digital Asset
Network
AUD
CBDC
HKD
CBDC
SGD
CBDC
EUR
CBDC
TWD
CBDC
Trade
Network
THB
CBDC
IFX
Network
Depository Regulator
Node
Sell Side
Buy Side
DTP
Operator
Customs
Seller
Carrier
Buyer
ISO 20022
Swi connector
Bank
Regulator
7
Swi CBDC sandbox project – Phase 2
The use cases
Building on the core foundation of cross-
border payments, this experiment explored
the four use cases outlined below.
1. Conditional/trigger-based payments –
Trade-versus-Payment (TvP)
Swi has developed an API specification for
digital trade platforms in order to support
interoperability between trade platforms. The
trade payments use case demonstrated how
complex, cross-jurisdictional payments could
be automated for a clean/open account
trade, using smart contracts, orchestration
by the Swi Transaction Manager simulator,
and the Swi connector for communication
between trade and CBDC networks.
2. Foreign exchange –
Payment-versus-Payment (PvP)
O-chain selement was previously explored
in Phase 1 of Swi’s experiment. Given
the current market infrastructure, Phase 2
explored partially o-chain and on-chain FX
selement. We explored this use case in two
ways – one more conceptual, and one closer
to market practice today. The former involved
alternative FX models like an International FX
Marketplace (IFX) concept, whereby global
commercial banks could perform FX trade
and selement on a single digital network.
The laer solution involved a simplified
processing engine for FX selement inspired
by the existing CLS selement service. Given
that CLS plays a major role in global FX
selement, and based on demand from the
working group, the experiment explored how
CLS could expand its selement methods
to include CBDCs. Both solutions featured
the use of the Swi connector and the Swi
Transaction Manager simulator.
3. Delivery-versus-Payment (DvP)
Digital assets have so far moved at a faster
pace than digital currencies. Most of the
live digital networks have some form of
on-chain cash issued within the network
for selement. In order to achieve scale and
network benefits, it is therefore important
for digital assets networks to have an on-
chain form of cash to facilitate true atomic
selement.
There was significant interest from the
working group in interlinking digital assets
networks to multiple CBDC networks in order
to explore cross-network interoperability and
selement. This required the involvement of
securities market infrastructures to design
and test a solution.
4. Liquidity Saving Mechanism (LSM)
New digital networks have the potential
to impact liquidity management in
numerous ways, both positive and negative,
with the overall net impact currently unclear.
There is risk and cost associated with
managing liquidity across networks.
As such, the experiment created models
to assess the implications of these
developments for liquidity management,
and to explore the potential benefits of
incorporating liquidity saving mechanisms
into the interlinking solution.
8
Swi CBDC sandbox project – Phase 2
Background, problem
statement, key objectives
In the realm of international trade, the
mechanics of payments have long been
characterised by complexity and ineciency.
Recent years have seen a surge in the
volume of global trade, with the World
Trade Organization reporting a significant
increase in merchandise trade volume. While
extremely encouraging, such growth has
magnified the challenges inherent in trade
finance, particularly in the realm of payment
selements. The current landscape for trade
payments is fraught with delays, high costs
and risks, primarily due to the reliance on
legacy systems and paper-based processes.
There are numerous industry initiatives
currently underway which are looking at
digitising global trade, including the adoption
of electronic bills of lading (eBL), which has
the potential to speed up the transfer of
documents and reduce associated fraud. But
the current lack of technical interoperability
between existing eBL platforms presents a
significant obstacle to wholesale adoption.
The key objective of this use case was to
demonstrate how digital trade networks
could be interlinked with other networks such
as CBDCs. The experiment also explored the
technical feasibility of automating complex
trigger-based payment events across
dierent networks.
The high level solution
To test the solution in the sandbox, we
simulated a Digital Trade Platform (DTP) on
Hyperledger Fabric. A core assumption was
that a digital trade network could act as a
trusted network for global trade, involving
diverse participants like buyers, sellers,
carriers, and financial institutions. It would
also support the tokenisation of trade
purchase orders (POs), enabling a digital
representation of trade agreements on the
blockchain.
The simulated digital trade network – see
Figure 3 – includes corporate participants
which are pre-configured as buyers, sellers,
carriers and port authorities, along with a
network authority like the DTP Operator.
This setup, integrated with standard
CBDC network configurations, ensures a
comprehensive testing environment.
Our approach was based on key
assumptions – for example, that one PO
represented one trade agreement, and that
one PO could map to multiple invoices.
The focus was on facilitating the seamless
exchange of goods and funds using DLT and
smart contracts, and thereby revolutionising
the TvP paradigm.
The testing was structured to simulate
real-world trade scenarios that included the
creation and fulfilment of POs, issuance of
invoices, and automated payment execution.
Participants interacted with the system through
their respective dashboards, executing trade
and payment processes as per the designed
workflows. The use of smart contracts ensured
that payment events were automatically
triggered once trade conditions had been
successfully fulfilled.
Use case 1: Trade payments
The key objective of
this use case was
to demonstrate how
digital trade networks
could be interlinked
with other networks
such as CBDCs.
Transaction
Manager simulator
Buyer CBDC
Network
Seller CBDC
Network
Digital Trade
Network
PO Tokeniser
Buyer/Seller
Payment Events
Port Authority/ Customs
Carrier
ISO 20022
Swi connector
Bank
Regulator
Figure 3: High-level representation
of the simulated trade network
9
Swi CBDC sandbox project – Phase 2
Results and feedback
The experiment successfully demonstrated
the technical feasibility of automating trade
payments using DLT and CBDC networks.
Integration between the DTP and CBDC
networks through the Swi connector
was seamless, facilitating real-time
communication and transaction processing.
Notable outcomes of the experiment
included the following:
– Trade lifecycle. The DTP comprised
the buyer, seller, carrier, port authority
and their respective banks. Through the
‘open account’ approach, we were able to
represent most of the actors present in a
trade lifecycle.
– Smart contracts. The DLT-based DTP
allowed us to implement eective smart
contracts for capturing trade clauses in a
typical trade contract.
– Payment workflows. Event-driven
programming implemented on the digital
trade network allowed us to automate
pre-approved payment workflows
between two networks using the Swi
Transaction Manager simulator. For
payments processed outside operating
hours, this meant that the need for manual
intervention was reduced. Payment events
were programmed based on documentary
evidence, such as customs certificates.
– Fraud risk. We found that tokenising a PO,
and managing the lifecycle of a PO token
and associated payment events via smart
contracts, can reduce fraud and double
financing issues. This is made possible
because the PO token is escrowed until
a pending invoice is seled.
– Intermediaries. The experiment showed
that interlinking multiple digital networks
and streamlining payments can help
reduce the number of intermediaries
needed in cross-border trade payments.
Peer-to-peer atomic trade-versus-
payment was possible.
– Trade digitisation. The continued use of
ISO messaging standards will help with
trade digitisation and bring in a common
interoperability layer.
– Interoperability. Ultimately, the
experiment demonstrated seamless
interoperability between dierent digital
networks across technology stacks using
the Swi connector.
Participants highlighted the potential of
this solution to reduce trade payment
delays, enhance trust among trade parties,
and significantly lower transaction costs.
Participants also provided valuable insights
into potential areas of improvement
and additional features that could be
incorporated in future iterations.
Next steps
In 2024, as part of our wider strategy to
support the digitisation of trade, we will
continue to engage with our members, and
with the broader trade industry, to address
additional challenges in the areas of legal
interoperability, technical accessibility,
ecosystem-wide standards and adoption.
We plan to bring together multiple trade
initiatives, such as this work on CBDCs and
our recently reported work on Electronic Bills
of Lading (eBL), to explore how Swi can play
an important role in enabling digitisation and
interoperability. We aim to prioritise initiatives
that could have a tangible near-term impact on
the trade ecosystem.
Some of the areas to be explored are:
– Wider implementation: Expanding the
implementation to include more global
trade participants, providing a more
comprehensive testing environment.
– Advanced regulatory compliance
features: Integrating advanced
regulatory compliance features to
navigate the complex landscape of
international trade law.
– Deeper integration with existing
financial systems: Ensuring deeper
integration with existing financial
systems and infrastructures to facilitate a
smoother transition to this new paradigm
of trade payments.
– Developing an eBL interoperability
model: Working closely with the eBL
platform providers to facilitate the
exchange of data between eBL platforms
and banks over Swi with a standardised
API layer, thereby enabling dierent
systems to interoperate via a single
connection and single identity.
– Promoting the eBL Declaration:
Continuing to encourage banks and
corporates within our community to sign
the Declaration as part of the industry’s
drive to deliver faster transactions, reduce
costs and lower fraud risk through the use
of digital authentication systems.
– Assessing the value of a trade
repository: Collaborating with our FIT
Alliance partners, we will assess the
value of creating a trade repository to
eliminate the need for a ‘peer-to-peer’
integration and share digitised files in a
standardised and secure way.
Taking into consideration ongoing global trade
initiatives at Swi, our eorts will be geared
towards evolving this solution, embracing a
network of networks approach, and integrating
AI – all of which is intended to help shape the
future of international trade payments.
Ultimately, the
experiment
demonstrated seamless
interoperability
between dierent
digital networks across
technology stacks using
the Swi connector.
10
Swi CBDC sandbox project – Phase 2
Background, problem
statement, key objectives
The foreign exchange market includes all
aspects of buying, selling, and exchanging
currencies at current or determined prices.
In terms of value, it is the largest financial
market in the world, trading about $7.5 trillion
a day as reported by the BIS.
Today, FX trade and selement are two
dierent steps. FX trades require both a
buyer and a seller, and a way to match them
in order to sele. While the markets for highly
traded currencies like the United States
Dollar, Euro, British Pound Sterling, Swiss
Franc and Japanese Yen are highly ecient,
other currencies can be less ecient.
Platforms like CLS support the world’s largest
currencies and mitigate selement risk
accordingly. Currencies not supported by
CLS need to go via other routes, which can
entail selement risk due to unsynchronised
currency flows.
The feedback from the first sandbox
exercise revealed an appetite for
exploring new market structures which
can eectively collapse the two steps of
trade and selement into a single step.
We believe there are benefits to researching
new market constructs, enabled by
technological innovation such as DLT-based
CBDC networks.
The key objective of this use case was to
explore newer models. Multiple models
were presented to the working group, and
by popular demand, two approaches were
shortlisted for sandbox experimentation.
These are outlined below:
Use case 2: Foreign
exchange
A. International Foreign Exchange
Marketplace (IFX): A conceptual
solution which explores how CBDCs
issued in dierent jurisdictions can
be both traded and seled on a
single network in a safe and ecient
manner. The marketplace explores
trading and selement of spot FX
transactions between commercial
banks using CBDCs.
B. CLS-inspired selement system:
There was enthusiasm for exploring
an alternative solution which builds on
the existing ecosystem structure. This
solution leverages the capabilities of a
CLS-like selement engine to mitigate
selement risk for cross-CBDC FX
selement, with similar protection
as for fiat currency.
We believe there
are benefits to
researching new market
constructs, enabled by
technological innovation
such as DLT-based
CBDC networks.
11
Swi CBDC sandbox project – Phase 2
Approach A: International Foreign Exchange
(IFX) Marketplace
High level solution
Central banks around the world are
exploring the design of CBDCs, their
implications, and the innovation that
they can bring. In this experiment we
investigated and developed a secondary
network, the International FX Marketplace,
which uses multiple CBDCs to facilitate
ecient, secure, real-time FX trade and
selement, with the potential to reduce
the cost of international transactions. By
leveraging distributed ledger technologies,
CBDCs inherently include features like
atomic selement/swaps, if transactions
occur within a single network.
For the purposes of this experiment, a
simple FX trade functionality was built
which could be expanded and enriched
in the future. The experiment focused on
providing an infrastructure that would enable
participants to simulate various FX trade
scenarios, and provide feedback on how
this concept could be further enhanced
(see Figure 4). This experiment also lays the
foundation for a network on which further
models like Automated Market Makers could
be explored in the future.
Central to the solution is the
implementation of a decentralised
network or marketplace that can facilitate
FX currency trading and selement.
Participants in the network are global
financial institutions with access to
multiple CBDCs. The solution requires a
designated ‘Network Authority’ role, which
is responsible for maintaining the network
and safekeeping smart contracts. This
network can hold various equivalent ERC-
20 currencies belonging to
domestic CBDCs.
Design and development
– Issuance. In the first instance,
institutions transfer funds from
domestic CBDCs to the IFX network.
The issuance of tokens is facilitated
by an ‘IFX Tokeniser’ smart contract
developed on the CBDC network.
– FX trade. Once currencies have
been transferred and made available
on the IFX network, institutions
can then conduct spot FX trades.
Smart contracts developed on the
IFX network swap the currency pair
between the institutions as agreed in
the IFX smart contract.
– Redemption. Aer an FX trade
is complete, and the required
currency has been obtained,
currency from IFX can be redeemed
on the domestic network through
the redemption process.
Transaction
Manager simulator
ISO 20022
Swi connector
Bank
Regulator
Wallet
IFX Tokeniser
IFX Token Issuer
IFX
Network
SGD
CBDC
THB
CBDC
AUD
CBDC
HKD
CBDC
Figure 4: High-level representation of
the simulated IFX network
12
Swi CBDC sandbox project – Phase 2
Approach B: CLS-inspired selement system
Background
CLS runs the world’s largest multicurrency
FX selement system, CLSSelement. It
is used by 74 selement members and
more than 35,000 indirect participants,
and seles an average daily value of
approximately USD 6.5 trillion in 18 of the
world’s largest currencies. CLS seles
in central bank money with funding and
de-funding being eected through the
real-time gross selement (RTGS) systems
of the participating currencies.
CLSSelement mitigates FX selement
risk by synchronising the selement
of payment instructions for the two
currency legs of an FX trade. It provides
PvP functionality, in which a party’s
payment instruction in one currency is
not seled unless the corresponding
payment instruction in the counter
currency is seled.
Cross-CBDC selement
This selement risk, which is currently
addressed for fiat currencies, will also
exist with CBDCs if no similar protective
arrangement is organised at industry level.
In a world where RTGS systems and
CBDCs will coexist, participants will want
to leverage existing industry capabilities
to continue mitigating FX selement
risks and accelerate the digital journey.
Swi and CLS therefore collaborated on
a cross-CBDC selement use case to
explore the synergies between the Swi
connector and CLS’ capabilities. To meet
this use case, Swi simulated a sandbox
set up with multiple domestic CBDC
networks in a two-tier architecture that
allows central banks to issue CBDCs/
central bank money to financial institutions
(FIs). In the resulting model, which
replicates the model currently in place with
RTGS systems, CLS has a node in each of
the domestic CBDC networks and is able
to hold and transact in CBDCs.
The experiment required the design
and development of a lightweight CLS
processing engine. This processing
engine was inspired by the existing
CLS selement service, with a focus on
basic multilateral neing and selement
capabilities. While today’s set-up
provides one daily selement window,
three selement sessions at dierent
times of the day were considered for
this experiment.
CLS processing takes place outside the
chain, linking dierent CBDC networks
using the Swi connector and Swi
Transaction Manager simulator. FX
trades that have been pre-matched and
confirmed by FIs are uploaded to the CLS
processing engine. Multilateral neing is
performed by the CLS processing engine
and the need position for each session
is provided to the FIs and CLS on the
network. FX trades then undergo atomic
selement using the Swi connector
and Swi Transaction Manager simulator.
See Figure 5 for details of how the CLS-
inspired selement system was set up.
Design and development
– FX trade. FIs trade with each other
using their existing trading venues.
Payment instructions for the two legs
of each trade are sent to CLS.
– Multilateral neing. At the times
configured in the system, the
CLS processing engine conducts
multilateral neing for every selement
cycle. Aer neing is finished, the
engine informs FIs about their pay-
ins and pay-outs in their respective
CBDCs.
– Selement cycles. The domestic
CBDC networks each have a set of
FIs eligible for selement with CLS.
Pre-matched FX trade instructions,
with session IDs indicating a
selement cycle, are received by
the CLS processing engine from the
participating banks:
– Three selement cycles are performed
by the CLS processing engine every
24-hour period for five days per week.
– The selement cycle is configured in
a way that broadly aligns with the time
zones of APAC, Europe, and America.
13
Swi CBDC sandbox project – Phase 2
Figure 5: Experiment set-up of the CLS-inspired selement system
DB Bank HSBC Bank
CLS Bank
Swi TM
simulator
Step 4: Simultaneous execution on
all-or-nothing basis (atomic selement)
EUR CBDC Network HKD CBDC Network
FX Trade Instruction
Pay-In
Schedule
Multilateral
Neing
Pay-In
Schedule
Multilateral
Neing
Pull need
EUR amount
Credit Nostro Wallet
with EUR amount
Credit Nostro Wallet
with HKD amount
Pull need
HKD amount
CLS Processing Engine
Confirmation of selement
DB HKD
Nostro bank
HSBC EUR
Nostro bank
CLS Bank
Submit confirmed
FX Trades to CLS
DLT Native DLT Native
DLT Native DLT Native
Pacs.009Pacs.009
Many BUYs : HKD
Many SELLs : EUR
Submit confirmed
FX Trades to CLS
Many SELLs : EUR
Many BUYs : HKD
MT3XX MT3XX
MT3XX
Swi connector
Swi connector
2
1 1
3 3
4
44
4
44
4
Swi TM
simulator
Digital Trade
Network
Atomic selement
CLS is a participant/node in each of the
domestic CBDC networks, with permission
to hold and transact in CBDCs. It has
preauthorisation to pull funds from FIs,
which is needed for selement. The CLS
processing engine initiates transactions
across networks, pulling funds (pay-
ins) from the FIs due to pay, conducting
selement, and pushing funds (pay-outs)
to the FIs due to receive payment.
Each selement cycle is composed of
three steps which occur simultaneously on
an all-or-nothing basis (i.e. atomic):
1. Pay-in of net amount – CLS debits
FIs’ accounts/wallets in CBDC where
they have short positions (pull), and
credits the account/wallet of CLS in
the CBDC. This diers from market
practice today, which uses a ‘push’
rather than ‘pull’ model.
2. Selement of gross amount – the
CLS processing engine seles the
individual underlying FX instructions
on the FIs’ account/wallets on the CLS
processing engine.
3. Pay-out of net amount – CLS debits
the account/wallet of CLS at the CBDC
and credits the FI account/wallets
in the CBDC where they have long
positions (push).
Formats
The native DLT format is used for all
communication on the chain and within
the CBDC networks. The Swi connector
and Swi Transaction Manager simulator
facilitate message format conversion
between the CLS processing engine and
CBDC networks.
14
Swi CBDC sandbox project – Phase 2
Overall results and feedback
Both models successfully demonstrated
technical feasibility by fulfilling the
requirements set out by the working group.
The IFX Marketplace showed how
technology can be leveraged to experiment
with newer models, whereby central banks
can manage CBDCs without necessarily
operating or controlling the underlying
infrastructure. Commercial banks could use
CBDCs to engage in instant FX trading and
selement, avoiding credit and selement
risk and improving eciency. Future
considerations for such models should
include the legal, governance and regulatory
aspect of operating such decentralised
networks, the incentive mechanism for
commercial banks to participate in such
an arrangement, and nonfunctional
capabilities like security, scalability
and data requirements.
The CLS-inspired selement system
demonstrated how an existing critical
infrastructure, widely adopted by the FX
industry, could successfully be used to
remove selement risk from cross-CBDC
transactions, as it currently does for fiat
currencies in central bank money. Through
a simulated CLS processing engine, we
demonstrated how standard matching
and neing can bring material liquidity
optimisation. Neing capabilities embedded
into the CLS processing engine significantly
reduce the amount for liquidity needed
to sele FX transactions, especially when
fragmentation of liquidity due to pre-funding
of accounts is required.
In addition, the experiment explored the
possibility of using multiple selement cycles
to strike a balance between atomic/instant
selement, and selement and liquidity
optimisation (‘molecular selement’). It
also tested the conduit for timed payment
synchronisation, which is essential for
ecient PvP selement.
As CBDC live trials gain momentum,
some considerations for future exploration
are as follows:
1. Move from the simple and basic process
flow of the CLS processing engine to a
more sophisticated and realistic set-up,
for example by including a CBDC network
on one side and a fiat currency through
its local RTGS on the other side.
2. Bring in real world considerations such
as failure cases, e.g. due to insucient
liquidity.
3. Broaden the analysis of non-technical
aspects (e.g. legal, regulatory,
geopolitical).
Next steps
Through the interactive collaboration
sessions, participants provided valuable
input for Swi to consider as we continue to
enhance our interlinking solution.
In the FX space, Swi’s approach is to
support innovation that fosters frictionless,
risk-free cross-currency flows. Given the
increasing market demand for on-chain
selement of cross-border payments and
FX trade, a beta version of Swi’s interlinking
solution will be enhanced to support a PvP
use case. With the enhanced version, we will
aim to support industry test initiatives around
PvP use cases. This will provide valuable
feedback to help develop a genuinely useful
solution for the community.
CLS will continue to engage with its
community to gather feedback on the
experimental solution. We will continue
to engage and collaborate with CLS as a
trusted partner in order to enhance the
solution further.
Both models successfully
demonstrated technical
feasibility by fulfilling the
requirements set out by
the working group.
15
Swi CBDC sandbox project – Phase 2
Use case 3: Delivery-
versus-Payment (DvP)
Background, problem
statement, key objectives
The industry interest in tokenised assets
is being driven by demand for improved
liquidity, lower transaction costs, enhanced
transparency, and security. By allowing
fractional ownership, tokenisation opens
up investment opportunities to a wider
audience, democratising access to assets
that were previously out of reach for many.
Tokenised assets oer a digital alternative to
traditional securities selement processes,
which oen take place over multiple days.
Smart contracts can automate and expedite
the selement process and automatically
execute transactions when predefined
conditions are met. This eciency reduces
the time from trade initiation to completion.
However, a central challenge to the wider
adoption of tokenised assets is the lack of
interoperability and maturity of tokenisation
platforms. Each platform may operate on a
dierent underlying digital ledger technology,
which may be incompatible with other
systems or applications without introducing
additional means of connecting them.
Cross-chain bridging protocols are presented
as a potential solution to interoperating
between disjointed tokenisation platforms
and digital ledger technologies more
broadly. However, these bridges have been
repeatedly aacked and exploited, leading to
billions in stolen cryptocurrency over the past
few years, demonstrating a lack of security
and technological maturity.
Blockchain-based interoperability
In 2023, Swi and its community explored
an approach to blockchain-based
interoperability to remove friction from
tokenised asset selement. Building on
Swi’s existing position in securities, the
model enables institutions to interact with
dierent public and private blockchains
using Swi as a central connector. Financial
institutions may leverage their existing
Swi infrastructure to build and send MT
messages, which contain instructions to
move tokenised assets across dierent
blockchain systems. This experiment
demonstrated the seamless integration
of bridging solutions with existing
message standards.
Transforming DvP
Today, live digital assets networks oen
fall short of providing optionality for the
payments leg. Assets and cash are issued
on a common platform to reduce complexity
around interoperability. The objective of this
use case was to explore alternate solutions.
This exercise involved the interlinking
of multiple asset and cash networks
to facilitate DvP in a cross-border seing
where the buyer and seller are in dierent
CBDC networks. The same solution can
be implemented in a domestic seing
where buyer and seller are in the same
cash network.
In addition, the experiment also explored the
technical feasibility of locking asset tokens
via a smart contract implemented on the
network. Upon successful DvP confirmation,
the custodian was trusted with executing
the release of the asset tokens. This process
ensured that the seller had the ownership of
the tokens until a DvP was executed.
High level solution
The sandbox set-up for this use case
included multiple DLT networks as follows:
1. The tokenisation platform built on
Hyperledger Besu. This platform acts as
a trusted network for a global securities
exchange involving a regulated tokenised
asset issuer and a network authority – for
example, with a Central Securities Depository
acting as the platform operator. Hyperledger
Besu was chosen as the technology for the
platform based on the participants’ request
to support Besu, given its common use as
a technology for digital asset platforms.
2. The buyer’s and seller’s CBDC networks
built on Corda or Hyperledger Fabric.
These CBDC networks have the
buyer’s bank and seller’s bank as direct
participants, through which payment
selement is instructed.
Interface and application layer
The solution features a simple and
straightforward front-end, providing users with
various securities trade oers. The interface
and underlying application layer enable
activities such as purchase request creation,
validation and confirmation, as well as the
monitoring of key transaction milestones.
The application layer manages requests from
the user interface. These include validation
of the request against the corresponding
trade oer, generating oline signatures
for on-chain asset delivery, and generating
messages for communicating across
networks via the Swi connector.
This exercise involved
the interlinking of
multiple asset and cash
networks to facilitate
DvP in a cross-border
seing where the
buyer and seller are
in dierent CBDC
networks.
16
Swi CBDC sandbox project – Phase 2
DLT and smart contract layer
At the core of our solution is the DLT and
smart contract layer which maintains
consistent records of transactions – thereby
providing greater transparency over business
contract logic and transaction monitoring.
Each of these networks implements several
smart contracts to enable payments or
asset delivery.
The tokenisation platform supports the
buying and selling of simulated tokenised
bonds, with payment events taking place
across two separate CBDC networks. During
the experiment, participants interacted
with the system through their respective
dashboards, executing DvP scenarios by
acting as a buyer for each test. The use of
smart contracts as asset escrow accounts
ensured that payment events could occur
atomically, with final selement of the
tokenised asset to the buyer’s own wallet.
The process flow is as follows:
– O-chain signatures (see Figure 6,
step A) O-chain signatures are
generated by the buyer via their bank
application and embedded in a message
to be relayed to the buyer’s CBDC
network via its Swi connector.
Our blockchain interoperability
experiment enabled us to adapt
Ethereum-based standards for
o-chain signatures to this application-
specific use case, which was rooted in a
separate set of requirements including
integration with the Swi connector. As a
result, each system of o-chain signatures
is compatible only with the corresponding
set of smart contracts, which can correctly
validate those signatures and relay them to
additional contract methods as needed.
– Execution (see Figure 6, step B) The
o-chain signatures specific to this use
case also demonstrate the capability
of delegating a trusted third-party to
execute the underlying instructions at
a later point, on behalf of the signer. By
combining this o-chain signature and
delegation with a series of confirmation
messages orchestrated by the Swi
Transaction Manager simulator, each
trade executes atomically with the
corresponding transfer of funds.
– Delivery (see Figure 6, step C) For
the delivery leg, each seller has a
corresponding smart contract wallet
which helps facilitate the two-stage
delivery process of the tokenised asset.
This smart contract wallet exists as a
single smart contract for each seller.
The two-stage delivery process is
as follows:
1. The asset is escrowed and stored at this
contract until payments are received.
2. Final selement occurs from the
appropriate smart contract wallet
to the relevant buyer once payment
confirmation has been received and
relayed by the Swi Transaction
Manager simulator.
Transaction
Manager simulator
Buyer CBDC
Network
Seller CBDC
Network
A
B
C.2
C.1
A
Digital Asset
Network
Smart contract
ISO 20022
Swi connector
Bank
Regulator
Wallet
Public key
Private Key
Signed Blockchain
message
Figure 6: High-level overview
of the simulated DvP network
At the core of our
solution is the DLT
and smart contract
layer which maintains
consistent records
of transactions.
17
Swi CBDC sandbox project – Phase 2
Pre-configured entities
The simulated tokenisation platform includes
pre-configured entities, such as the issuer
responsible for asset issuance and minting,
and the tokenisation platform operator.
Securities trade oers were also pre-
configured but provided a sucient dataset
to enable comprehensive testing across all
in-scope scenarios.
Results and feedback
The sandbox experiment allowed for
testing to simulate real-world DvP
scenarios, which involved the creation
and fulfilment of tokenised asset purchase
requests, along with automated payment
and delivery execution.
The experiment demonstrated the following:
– DvP through integration with
multiple digital networks. We tested
the integration of the existing CBDC
networks with a tokenisation platform
simulated on Hyperledger Besu,
emphasising straight-through processing
of transactions between multiple
disparate networks built on dierent
technology stacks.
– Atomic DvP orchestration. The
primary focus for this use case was
to demonstrate atomic cross-border
DvP scenarios. This included testing
automated triggers, from payment and
asset escrow events to final selement
of funds and delivery of the tokenised
asset. The system reliably executed
automated payment events based
on asset exchange milestones and
confirmation messaging.
– User interface interaction. The
interaction of various trade participants
through customised dashboards was
a key focus area, ensuring alignment
on ease of use and clarity in the trade
and payment processes.
Next steps
Through the interactive collaboration
sessions, participants provided valuable
input for Swi to consider as we continue
to enhance our interlinking solution.
Given the increasing market demand for
on-chain cash for the selement of
tokenised assets, a beta version of Swi’s
interlinking solution will be enhanced to
support DvP use cases. As we continue to
develop the Swi connector, we will aim
to support industry test initiatives around
DvP use cases, which will provide valuable
feedback to help develop a genuinely
useful solution for the community.
The system reliably
executed automated
payment events
based on asset
exchange milestones
and confirmation
messaging.
18
Swi CBDC sandbox project – Phase 2
Use case 4: Liquidity Saving
Mechanism (LSM)
Background, problem
statement, key objectives
Liquidity Saving Mechanisms (LSMs) are
sophisticated algorithms used in the financial
industry, particularly by banks and other large
financial institutions. Their role is to optimise
the processing of payments and selements
in a way that minimises the need for liquid
assets, while still ensuring the timely and
ecient completion of transactions.
With the rise of digital currencies and assets,
fragmentation of liquidity is a real concern,
particularly when considering atomic
selement across dierent payment systems.
Many digital currencies and blockchain
platforms operate in silos, lacking native
interoperability. For atomic selements
to function seamlessly across dierent
currencies and platforms, a robust framework
is needed for cross-chain transactions.
Liquidity costs, meanwhile, are driven by
three factors:
1. Operational cost: Driven by manual and
repetitive processes.
2. Opportunity cost: Driven by the need to
maintain cash/collateral across multiple
parties to enable selement across
multiple systems such as nostros, central
counterparties (CCPs), custodians and CLS.
3. Tokenisation: Driven by the need for
instant atomic selement, requiring
accounts to be pre-funded in the
dedicated systems. This will lead to further
cost and fragmentation of liquidity.
The objective of this use case was to
explore models which can help reduce the
fragmentation of liquidity, thereby reducing
the costs and risks associated with holding
high levels of liquid assets across dierent
payment systems. Developing and adopting
standards for interoperability is essential
when it comes to facilitating liquidity in a
multi-currency, multi-platform environment.
High level solution
The working group discussions explored the
following two approaches:
Approach 1: Can smart
contract-enabled payment
tokens help with eective
liquidity management?
DLT-based payment tokens with
smart contract programming logic can
enable near-real-time or programmed
selement of transactions, without
the need for manual intervention. This
immediacy reduces the need for holding
large amounts of liquidity in anticipation
of transaction selements, thus freeing
up capital that can be used more
eciently elsewhere.
Instant repo in domestic markets,
and liquidity management across CLS
selement cycles, were the two use
cases discussed through the exercise.
Approach 2: Can LSM algorithms
optimise neing between digital
networks?
The LSM experiment carried out by
Project Ubin involved simulating a
payment system in which transactions
between parties could be seled in real-
time on a blockchain or DLT platform.
The LSM was tested for its ability
to aggregate multiple transactions,
neing them o against each other to
minimise the total amount of liquidity
needed for selements. This approach
is particularly useful in a system where
participants have multiple incoming and
outgoing payments, as it allows for more
ecient use of funds.
Taking inspiration from the above
experiment, the working group explored
the potential of a neing algorithm
implemented at the Swi Transaction
Manager simulator, which orchestrates
transactions between multiple digital
networks. See Figure 7 for an overview
of the proposed approach.
The objective of
this use case was to
explore models which
can help reduce the
fragmentation of
liquidity.
19
Swi CBDC sandbox project – Phase 2
Rules Engine
Intelligent
Routing
Error Handling
Swi Transaction Manager simulator
Detect
Evaluate
Execute
Receive payment obligations from dierent
networks in a central queue.
Receive indicator to participate in neing from
banks (optional).
Match oseing incoming and outgoing
payment obligations.
Matching rules to be defined in the gridlock
Algo module.
Send an instruction to the identified bank
to initiate payment transfer with the
need amount.
Smart contract can trigger payment initiation
for the bank.
1.
2.
1.
2.
1.
2.
Gridlock Algo
1
2
3
ISO 20022
Swi connector
Bank
Regulator
Figure 7: Net obligations between platforms via Swi
connector and Swi Transaction Manager simulator
High level flow
1. Payments are submied in a central
queue maintained at Swi Transaction
Manager simulator.
2. Oseing payments are matched to
create an optimised net position.
3. Banks receive a notification to initiate a
new payment instruction, created with
the need amount.
4. The Swi connector facilitates selement
across networks with new payment
instructions.
The neing capabilities can be utilised in
dierent scenarios and to meet dierent
needs. For example:
1. Financial institutions can agree to
participate in a market utility such as this
based on consent.
2. Neing is initiated based on payment
types.
3. Neing is triggered as part of business
continuity to ensure the timely selement
of end customer payments.
Results and feedback
There was a consensus among the working
group participants about the challenges
presented by the fragmentation of liquidity
between emerging digital networks. However,
participants also observed that these digital
networks currently lack maturity and scale.
Due to the nature of the use case, the
solution was a paper-based exercise. The
Swi team conducted additional bilateral
discussions with a subset of participants to
understand the need for exploring or building
such a solution. There was a clear support
for implementing neing capabilities at Swi
Transaction Manager; however, this was
seen as a medium-term rather immediate
requirement.
Next steps
There are no immediate next steps for
this particular use case. We will continue
to explore this solution as a paper-based
exercise this year. Swi is additionally funding
research around liquidity optimisation
through payment tokens.
Rules Engine
Intelligent
Routing
Error Handling
Swi Transaction Manager simulator
Detect
Evaluate
Execute
Receive payment obligations from dierent
networks in a central queue.
Receive indicator to participate in neing from
banks (optional).
Match oseing incoming and outgoing
payment obligations.
Matching rules to be defined in the gridlock
Algo module.
Send an instruction to the identified bank
to initiate payment transfer with the
need amount.
Smart contract can trigger payment initiation
for the bank.
1.
2.
1.
2.
1.
2.
Gridlock Algo
1
2
3
ISO 20022
Swi connector
Bank
Regulator
20
Swi CBDC sandbox project – Phase 2
Key findings
The feedback received through the working
group sessions and the technical sandbox
experiment has corroborated key findings
across the use cases outlined below.
The feedback from participants on the
capabilities of the Swi connector is also
summarised in Figure 8 below.
– Trade payments: Tokenisation built
on the foundations of digitised trade
has clear potential when it comes to
improving eciency, reducing costs and
minimising fraud. We demonstrated how
complex workflows for cross-border
trade payments can be automated and
orchestrated through the Swi connector
in order to sele preauthorised payments
on a 24x7 basis.
– Foreign Exchange (IFX): There was
excitement about exploring alternate
spot FX trading and selement solutions,
such as the conceptual International
Foreign Exchange Marketplace. We
demonstrated how CBDC issued in
domestic networks can be escrowed,
wrapped with rules if needed, and re-
issued on an external network through
the Swi connector by maintaining the
integrity of tokens. Central banks can
have visibility over tokens for monitoring
purposes, without necessarily managing
the marketplace infrastructure. Much
future work would be needed on multiple
aspects of the IFX concept, including
legal and regulatory issues, commercial
incentives for banks to participate in such
a network over existing FX markets, and
the development of more pioneering
models like Automated Market Makers
for cross-border FX trade.
– Foreign Exchange (CLS-inspired
selement engine): This joint eort
by CLS and Swi demonstrated the
value-add that a CLS-inspired neing
and selement engine brings to the FX
market, and the potential to sele in
CBDCs alongside RTGS systems. The
Swi connector demonstrated seamless
interoperability between the new and
existing market infrastructures.
– Delivery-versus-Payment: In order to
scale digital assets platforms that are
either already live or soon to go live,
interoperability with multiple on-chain
and o-chain cash networks is absolutely
critical. We demonstrated a true atomic
exchange of digital assets vs. CBDCs in a
cross-jurisdictional set up facilitated and
orchestrated by the Swi connector.
– LSM: Based on the feedback from the
working group session and multiple
bilateral interviews that we conducted, it
became clear there are multiple reasons
for why financial institutions choose
to fragment their liquidity. These may
include risk management, business
continuity, customer preference and
cost of payment. There is no immediate
demand to explore this use case any
further in the short term.
Foreign
Exchange
(IFX)
Foreign
Exchange
(CLS)
Delivery
vs
Payment
Trade
Payments
Automate complex
trigger-based payments
for trade across
multiple dierent
CBDC networks.
Facilitate atomic
DvP by interlinking
multiple asset and
cash networks.
Achieve
interoperability
with existing market
infrastructures to
leverage established
processes.
Facilitate atomic
PvP in a newer
industry set-up,
such as an industry
marketplace.
Swi
connector
ISO 20022
Figure 8: Summary of the Swi connector
capabilities per use case
21
Swi CBDC sandbox project – Phase 2
Conclusion and next steps
The second phase of Swi’s CBDC sandbox
project has received great support from the
financial community. The participants valued
the opportunity to engage with other central
and commercial banks across the globe,
exchange knowledge, and share views about
important design considerations for dierent
use cases. As such, our collaborative
innovation approach has delivered results
that can benefit the whole industry.
While we learnt that there is no one single
model for interlinking, our experiments
demonstrated that the Swi connector is
capable of supporting a variety of emerging
interlinking models via a standardised approach
that can help reduce fragmentation.
All participants agreed to three guiding
principles for interoperability which are
detailed below and summarised in Figure 9:
1. Interlinked networks: With the rise of
DLT-based networks, it is essential to
ensure native technical interoperability
between multiple networks, agnostic of
the asset class and technology platform.
To achieve interlinking in a standardised
and scalable manner, there is an
opportunity to leverage the industry’s
investment in ISO 20022 messaging as the
common language for payments across
new and established networks.
2. Single point of access: Most financial
institutions want to re-use their
investments in infrastructure and are
relying on Swi to provide a single point
of access to multiple digital networks.
This will bring down the cost of participation
in the networks. It will also benefit the
networks by bringing additional volume
through Swi messaging and interfaces.
3. Co-existence: We foresee a world in
which new digital networks will co-exist
with traditional market infrastructures, so
it will be important to provide seamless
communication and interactions between
the new and the old.
What’s next?
Following the conclusion of these
experiments, we aim to continue our
collaborative innovation in 2024 with our
global community. We will be working on two
distinct initiatives in particular:
1. Develop Swi connector –
beta version 1.5
We will continue to enhance the Swi
connector to support additional PvP and
DvP use cases, while working on functional
enhancements to improve the connector’s
capabilities in line with community feedback.
We will also add more technical capabilities
identified through the exercise such as:
– The ability to implement smart contracts
on digital networks that are based on
dierent DLT technologies.
– The ability to cryptographically lock/
release tokens on digital networks that
are based on dierent DLT technologies.
– The ability to port/move tokens between
networks while ensuring integrity of
token data, signature and embedded
programmability.
We further aim to develop a productisation
roadmap for the Swi connector, based on
market developments and readiness.
2. Industry interoperability initiatives
In parallel, we plan to demonstrate how the
Swi connector can be extended to interlink
other networks such as bank-led tokenised
deposit networks, and thereby enable
network eects. We will also support the
community in driving innovation in this area
forward by convening industry groups and
contributing to core network capabilities.
Guiding Principles for interoperability
Avoid ‘digital islands’
Ensure new digital networks can
connect not only to each other, but
to the existing financial system.
Single point of access
Enable institutions
to leverage existing
channels to reach new
networks and reduce
overhead.
Interlinked networks
Interlink new digital networks,
agnostic of asset class and
technology choices.
Global
Interoperability
1
2
3
Figure 9: Guiding principles for interoperability
Want to learn more?
To provide feedback, or if you would
like to learn more about our CBDC
experiments and solutions, please reach
out to your Swi account manager or
contact innovate@swi.com.
The Swi connector is
capable of supporting
a variety of emerging
interlinking models
via a standardised
approach that can help
reduce fragmentation.
22
Swi CBDC sandbox project – Phase 2
Acknowledgments
Swi team
Tom Zschach
Chief Innovation Ocer
Nick Kerigan
Managing Director, Head of Innovation
Pallavi Thakur
Director, CBDC & Interoperability
Aman Singh
Program Manager, Innovation
Giri Krishnapillai
Senior Technical Lead, CBDC
Charles Vinet
Senior Innovation Engineer
Mike Ninov
Innovation Engineer
Wes Harmon
Innovation Engineer
Miguel Suarez
Lead, Trade and Consumer Payments
Jack Pouderoyen
Lead, Digital Assets and Bank Networks
Charifa El Otmani
Director, Securities and FX Strategy
Capgemini team
Prateek Gahoi
Senior Manager
Pramod Bhosale
Senior Manager
Bhaskar V Anjinappa
Consultant
Saurabh Shukla
Associate Consultant
Sumit Pai
Consultant
Vishnu V R Samanthula
Senior Soware Engineer
Sandeep Kaikkoil
Senior Consultant
Anjali Manku
Senior Soware Engineer
Kaleido team
David Horne
Web3 Specialist
Jim Zhang
Head of Protocol
Hayden Fuss
Cloud Engineer
Cari Albrion
Cloud Engineer
Swi would like to give a special
thanks to the 175+ colleagues from
the 38 central banks, commercial
banks and market infrastructures that
participated in this sandbox project.
23
Swi CBDC sandbox project – Phase 2
About Swi
Swi is a global member-owned cooperative
and the world’s leading provider of secure
financial messaging services. We provide our
community with a platform for messaging,
standards for communicating and we oer
products and services to facilitate access
and integration; identification, analysis and
financial crime compliance. Our messaging
platform, products and services connect
more than 11,000 banking and securities
organisations, market infrastructures and
corporate customers in more than 200
countries and territories, enabling them
to communicate securely and exchange
standardised financial messages in a
reliable way.
As their trusted provider, we facilitate global
and local financial flows, support trade
and commerce all around the world; we
relentlessly pursue operational excellence
and continually seek ways to lower costs,
reduce risks and eliminate operational
ineciencies. Headquartered in Belgium,
Swi’s international governance and
oversight reinforces the neutral, global
character of its cooperative structure. Swi’s
global oce network ensures an active
presence in all the major financial centres.
For more information, visit
Web: www.swi.com
Twier: @swicommunity
LinkedIn: Swi
Copyright
Copyright © Swi — all rights reserved.
Disclaimer
Swi supplies this publication for
information purposes only. The
information in this publication may change
from time to time. You must always refer
to the latest available version.
