SWIFT embraces central bank digital currencies after sandbox success One of the many sanctions imposed on Russia after its illegal invasion of Ukraine was exclusion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) – the messaging network that most of the world's banks use to move money across borders. So important is SWIFT to the world economy that Australian …
"SWIFT thinks it can cope with all the stuff that delights blockchain-based finance disruptors: smart contracts and events-based programming to enable automated trading 24x7, atomic delivery versus payment (a technique that sees delivery of goods or securities noted on a blockchain, triggering payment so that money doesn't change hands before assets have been exchanged), and interoperability between CBDCs and other tokenized assets."
The whole point of blockchain technology is to solve the Byzantine Generals Problem, i.e. be able to pass messages (or execute peer-to-peer transactions) in a trusted way without needing a trusted intermediary. Any implementation of smart contracts based on the Swift network, completely negates this - all it gives you is a more modern, faster, smarter way to move money around, but you don't need blockchain technology for that if Swift is acting as the trusted intermediary, and you don't need Swift as a trusted intermediary if you have a true blockchain-based smart contract.
Similarly with central bank digital currencies, these are completely controlled by whichever central bank issues them, and gives the central bank complete control of everyone's money with little benefit to the users except convenience (although as we have historically seen, most users are willing to give away their privacy, their data, their location etc in exchange for some convenience. But will they give control of their life's savings???).
I’m afraid you fundamentally do not understand the multi-trillion dollar per day worldwide corporate and even sovereign financial payment world. There is NO worldwide payment and clearing system without a trusted intermediary. None. Yes, one of the features of blockchain is that you technically would not HAVE to have a trusted intermediary if in your blockchain you had set up the necessary message framework consisting of all the information needed by all the parties involved in a transaction in order to alleviate any trust issues amongst all parties. But when scaled to planetary scale as well as involving sovereigns this ad hoc, contract by contract feature of blockchain in general breaks down. The processing and clearing time latencies become too large and then there is the trust factor of who engineered the blockchain to begin with. Hence the need for a planetary intermediary. Also you don’t necessarily have to have a blockchain to initiate a CBDC. Tokenized currency is itself not a blockchain. Algorithmic…yes. Blockchain…not necessarily. One of the reasons that SWIFT can even begin tests in a sandbox environment for various CBDC is that they have adopted ISO 20022 which is the latest worldwide standardized payment message schema. It is a universal data format for payment and financial transactions that by the end of 2025 all the world’s banks and financial institutions will have to be converted to in order to participate in SWIFT as they will shut off the old messaging service by the end of 2025. As long as you have converted to ISO 20022 and have tokenized your currency you don’t need blockchain to create and utilize a CDBC. Now…for a lot of sovereigns they may CHOOSE to go full blockchain if and when they introduce their CBDC. But even then they will also choose to have that blockchain CBDC run through and clear through SWIFT because in their blockchain the payment messages will be encoded in ISO 20022 format which was developed by SWIFT. And they will want the added assurance and trust factors that SWIFT provides.
SWIFT is making these changes because it is in danger of a meaningful faction of the world financial markets splitting from it's grasp. The DeFi world , despite their arm waving, has been more concerned with uprockets in token prices than feature parity, and left critical parts unimplemented in most of the popular DeFi platforms. As a result, many of those networks don't scale well, and have absurd transaction fees(the exact opposite of one of their main selling points). Most have not implements robust fraud defenses and as mass fraud is on the rise that is a huge obstacle for DeFi gaining traction over conventional financial networks. As a result DeFi activity remains primarily a speculative enterprise mostly limited self facing activity.
Solving the intermediary trust issue for individual transactions without having a robust and scalable method to handle fraud and forced transaction rollbacks isn't enough. So SWIFT is going to be able play catch up because the powers that be control it, and will keep that control while benefiting from technical changes that give them the parts of a DeFi network that benefit them without being exposed to the problems and risk.
DeFi will only get a few more swings at the ball unless SWIFT chokes on it's pivot. I leave the question of how that till impact the various cryptocurrencies to the speculation of others.
"The DeFi world is a Libertarian fantasy and a criminal’s wet dream"
The libertarian theory of decentralised finance is that of completely free circulation of currency in a way that is untraceable to governments. That is, as you say, a criminal's wet dream because it has all the untraceability of cash combined with the convenience of easy bulk storage and transfer.
Compare this to, for example, encrypted messaging. A lot of Register readers aren't ultra-libertarians, but they are mostly (based on multiple threads on related articles) in favour of messaging that is end-to-end encrypted and not snoopable by governments / law enforcement. This is even when considering that criminals can use such end-to-end encrypted messaging for their criminal activities. So by the same token, shouldn't anyone wanting privacy in electronic transactions be in favour of a bitcoin-like way of anonymous electronic cash transfer?
Or do people generally trust their banks more than they trust their governments?
or trust WhatsApp / Signal etc more than they trust Bitcoin?
I'm curious as to why the difference??
Non sense. It may grease the wheels in your dystopia but nothing today stops banks and financial institutions at the behest of legal entities and sovereigns from controlling your finances. It’s the age old tactic of freezing assets due to criminal activity and the clawing back of said assets once a crime has been adjudicated. In fact a CBDC ( which doesn’t necessarily have to be blockchain just algorithmically tokenized ) can cause fraud to decrease just from the extra information encoded in it from the use of the ISO 20022 data schema coming online now and the only format used by the end of 2025 and run through SWIFT, although blockchain could increase that trust and anti-fraud factor. Actually blockchain apart from SWIFT will INCREASE fraud as blockchains have now been proven to be breakable and hackable not to mention that ad hoc tokenized and blockchain networks not to mention Bitcoin are rife with criminals and criminal financial transactions.
It’s the same nonsense when they categorise some things as war crimes.
All war is a crime
Metaphorically:
I cannot kill my neighbors, not that I want to, but if the state designates my neighbors as part of some evil group of which I should hate, then I should kill them and the law would be on my side, you know, because its war
This is the insanity we exist in
Acceptance is not required. Once a critical number of central banks around the world officially roll out their version of a CBDC even if that CBDC is used only for intrabank, interbank or both transactions all outliers will fall into place fairly quickly because the cost and friction of being the outlier in a global system of CBDC becomes too great. Also there’s no reason and nothing stopping a sovereign entity (nation state) from having a transitional banking system where CBDC, P2P blockchain and old fashioned cash co-exist. But the inevitable march to digital currencies including CBDCs whether tokenized or blockchained began first with fractional reserve banking followed by all currencies going fiat and then subsequently with the advent of the computer. One could make a hand waving argument we have had “tokenized” money since the advent of paper fiat money. The bill or coin in your hand is not your actual wealth. It is a physical representation…a token if you will…that is recognized by transacting parties and is usually generated by and granted legitimacy by a state actor.
Being that I've dealt with SWIFT for about 33 years, payments within SWIFT don't take days to compete, they generally go through in about a second.
What does take time are banks and financial institutions connecting to SWIFT dealing with the payments if they have clunky bankoffice batch run systems. Also, if they do things like switch off their SWIFT connection from say 5pm on a Friday until 8am on a Monday (or overnight) then anything pending being sent to/from will get held up on SWIFT and will be delivered when the institution next connects. Where things are delayed, the sender of the SWIFT message can get a delayed delivery report that will give a list of anything that is delayed by a recipient institiution.
So yeah, it's not so much SWIFT that is the problem but the clunky financial institutions connecting to it with ancient backoffice systems and ancient banking processes!
More answers on request!
Which is precisely why ISO 20022 is so important. One global standard messaging framework for all banks and FIs. And machine readable as ISO 20022 is based on XML. Now there will be no need for batch processing every 4, 6, 12 or 24 hours but 24-7 near real time processing because the friction of having a multitude of message formats amongst the world’s banks and FIs each with a different way of even formatting something as a date ( one bank uses MM/DD/YR and another uses DD/MM/YEAR ) which have to be reconciled and modified to match sometimes by hand …all of that is pretty much eliminated with ISO 20022. If you want to participate in SWIFT going forward the due date is November 2025. That’s when they turn off the old messaging system. It’s actually astonishing to think that it took this long because of the cost savings alone for the banks but we still have critical systems running DOS and Windows 95 so there you go.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
