Global banking messaging network SWIFT will test live transactions of tokenized assets and digital currencies next year, it said on Thursday. This is the final step in the currently slow integration of these assets into the broader financial system.
Banks and asset managers have been studying the possibility of “tokenizing” traditional assets such as bonds for several years.
They hope that by using digital units – typically blockchain-based tokens that represent a share of the underlying asset – exchanges can be faster, cheaper and more efficient, including cutting out middlemen involved in numerous transactions.
So far, however, they have failed to gain traction in the broader market.
Nearly 90% of the world’s central banks are also testing bank tokens.
central bank digital currencies (CBNCs), digital versions of fiat money, which facilitate the exchange of tokenized assets. Monetary authorities are trying to take advantage of the technological advances that have allowed cryptocurrencies like bitcoin to emerge.
SWIFT, which plays a crucial role in the global banking industry, has participated in trials involving both CBDCs and tokenized assets. In March, it said it would launch a new platform to connect CBDCs under development to the existing financial system.
“Now we’re seeing the demand from the industry to move out of this (trial) phase and see a digital asset actually move, and have a counterparty that pays them real money against that,” said Nick Kerigan, head of the SWIFT innovation.
“This is where we will go next year, but in a controlled way.
While the potential is significant, the fragmented nature of the market is holding it back and very few initiatives have progressed outside of banks’ internal systems.
Similarly, central banks are testing wholesale CBDCs for cross-border payments, but within small groups.
SWIFT’s latest initiative involves different types of digital assets combined across different platforms.
“To successfully trade and settle a tokenized bond transaction, you need liquidity and that’s where a tokenized deposit or wholesale CBDC comes into play,” Kerigan said.
“It’s not enough to have delivery or payment, you need both.
