Aaryamann Shrivastava
FXStreet
- SWIFT will be initiating a test with Hong Kong, Kazakhstan and another unnamed central bank for CBDC interoperability.
- Additionally, a second phase of sandbox testing for exploring additional use cases is initiated with 30 global financial institutions.
- The experiment comes days after G20 nations announced the Crypto Asset Reporting Framework (CARF).
The Society for Worldwide Interbank Financial Telecommunications, better known as SWIFT, is moving forward with its Central Bank Digital Currency (CBDC) tests. The digital fiat has been the focus of many countries, as have fund transfer facilitators such as SWIFT. With this experiment, if successful, CBDCs could potentially be fast-tracked globally into becoming a mode of fund transfer.
Read more - New York Fed successfully tests bespoke digital asset payment system even though technology already exists
SWIFT takes on CBDCs
In an announcement on September 13, the money messaging system stated that it would soon be initiating its next CBDC experiment. SWIFT noted that the beta test would be enrolling three central banks - the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan, as well as a third unnamed bank. Through this, SWIFT would test its innovative solution for interlinking CBDCs.
This test, if successful, would forge paths for interoperability, which refers to the ease of exchange of information and data among various systems. In the case of digital currencies, interoperability would allow for the transfer of CBDCs of one country to another’s through SWIFT, minimizing friction.
In addition to this experiment, SWIFT is also initiating the second phase of its sandbox testing. In this testing, commercial banks, central banks and financial market infrastructures are set to explore additional use cases of CBDCs. At the moment, about 30 leading global financial institutions, including the likes of The Reserve Bank of Australia, Deutsche Bundesbank, HKMA, and Bank of Thailand, will be participating, marking a 66% increase from the first sandbox testing participation.
The CBDC beta testing is the second major international money transfer experiment taken up this year. Earlier in July, the New York Federal Reserve completed its regulated liability network experiment. The experiment, which took place in partnership with Citi, SWIFT and other financial institutions, would be the New York Fed’s solution to instantaneous international settlement of transactions.
Distributed Ledger Technology (DLT), the underlying tech behind cryptocurrencies, is the basis of this experiment.
Cryptocurrencies, on the other hand, are also finding global acceptance, with 20 of the world’s largest economies joining hands in establishing standardized regulation. During the G20 summit this week, nations including the US, UK, India, and China, among others, announced the Crypto Asset Reporting Framework (CARF), which would come into effect by 2027.
Read more - Bitcoin adds 265k new users in 24 hours as G20 closes in on crypto regulation standardization
Bitcoin, altcoins, stablecoins FAQs
What is Bitcoin?
Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.
What are altcoins?
Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.
What are stablecoins?
Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.
What is Bitcoin Dominance?
Bitcoin dominance is the ratio of Bitcoin's market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.
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