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- The development of digital assets and central bank digital currencies (CBDCs) has brought global finance right to the verge of a seismic transformation.
- But how can central banks and financial institutions ensure the successful adoption of these powerful tools, and what is the key to unlocking their true potential?
- The answer lies largely in one concept: interoperability.
Collaboration, common standards, and seamless connectivity are clearly needed for financial institutions around the world to embark on this new era of digitalisation. From interoperability to privacy concerns, the adoption of these new technologies demands careful balancing.
At the Sibos 2024 conference in Beijing, the panel session ‘Enabling global interoperability: A scalable solution’ explored the essential elements needed for successful CBDC adoption, including the need for interoperability, the importance of live trials, digital transformation, and the complexities of regulation.
The panel featured:
- Marianne Demarchi, Chief Executive Europe, Middle East, and Africa (EMEA), Swift
- Sudhir Pai Katpadi, Chief Technology and Innovation Officer, Capgemini
- Nick Kerigan, Managing Director and Head of Innovation, Swift
- Michinobu Kishi, General Manager, Sumitomo Mitsui Banking Corporation
- Mauro Attilio Pernigo, Business Director, Intesa Sanpaolo
Common standards for CBDCs
At the heart of the successful adoption of CBDCs lies the ability of different systems to work together. This means implementing standards that help different financial entities communicate and transact seamlessly, regardless of their geographical location or technological setup.
Kerigan said, “We have been encouraging authorities to think about interoperability at this early design stage so that more standardisation and common patterns might emerge.”
This highlights the importance of planning for interoperability from the outset to foster a more cohesive digital currency environment. Modularity is also an essential part of this conversation. By creating CBDC platforms with modular components, central banks can tailor their implementations to meet specific regional needs while maintaining adherence to common global standards.
Pai said, “Some common patterns might emerge, which will then strengthen us to say, okay, if you are a category one or pattern one, then here is the additional layer of tailoring or configurations that you can build so that it becomes seamless.”
Such a modular approach will also make it easier for central banks to adopt new features without overhauling their entire digital infrastructure.
Furthermore, interoperability has the potential to lower barriers to entry, making adoption easier by reducing the complexities associated with connecting different systems. By developing standardised APIs and other technological solutions that can be readily deployed, financial institutions can ensure that the architecture of CBDCs is capable of working effectively across borders and between different financial infrastructures.
Experimentation and transition to live trials
The journey from CBDCs’ conceptualisation to their practical implementation has been long and winding. Over recent years, several central banks and financial institutions have engaged in sandbox trials and collaborative experimentation projects. These pilot programmes allow for the testing of different scenarios, understanding limitations, and gauging the practical benefits of digital assets.
Demarchi said, “We had launched a very large program in 2024 to stimulate … innovation in Europe and … that was providing to the participants a central bank digital currency.”
This experimentation phase has been key in pushing the boundaries of what is possible with CBDCs. Pernigo added, “We have it in Italy since a few years, and it is a system with which we can reconcile all the … accounts among Italian banks with Euro.”
However, the conversation is now shifting from experimentation to live trials. The transition from the laboratory to real-world implementation is a significant milestone that is already beginning to take place.
Demarchi said, “We will put all our sandbox, experiment, everything we’ve done into a live trial, alongside, of course, commercial banks and central banks.” This will test the viability of CBDCs in real-life scenarios, complete with all the complexities and demands of cross-border trade, payment settlement, and financial regulation.
Live trials enable central banks and financial institutions to identify and address the challenges that might arise during the practical deployment of CBDCs. These trials provide a better understanding of how digital currencies can facilitate cross-border payments and will set the foundation for their broader rollout.
Digital transformation of traditional financial assets
The adoption of CBDCs is part of a broader trend towards the digitisation of financial assets.
Tokenisation is transforming the traditional landscape of financial instruments, allowing them to be issued, traded, and settled using digital currencies. This transformation is not just theoretical; it is already happening in the form of tokenised bonds and credit notes, with central banks and financial institutions leading the charge towards a more digital-friendly future.
Pernigo said, “We have been subscribing to a native digital bond from an Italian government agency with a full life cycle… We bought it digitally using the digital Euro, provided that’s being read by the Bank of Italy with a solution which is called the AshaLink.”
This tokenisation of traditional assets such as bonds allows for the automation of processes that have historically been cumbersome and slow. By issuing these assets digitally, central banks and financial institutions can significantly reduce settlement times and enhance liquidity.
Demarchi said, “It shows that many benefits, including reduced settlement risk and improved operational efficiency, facilitating global trade because we enabled the exchange of currencies across time zones in real-time.”
While this transformation can make illiquid assets more tradable and accessible, it extends beyond efficiency gains. By adopting a digital-first approach, financial institutions can create new opportunities for investment and funding, especially in areas where traditional systems have proven restrictive.
The ability to digitise short-term financial instruments such as credit notes can create new ways for companies to obtain funding quickly, with greater transparency and reduced friction in the process.
Challenges of regulation, privacy, and scalability
While the benefits of CBDCs and digital assets are evident, the journey towards widespread adoption is not without challenges.
Regulation, privacy, and scalability stand out as key issues that must be addressed to ensure that CBDCs can function as a trustworthy and effective component of the financial ecosystem. Regulatory compliance is particularly critical as the implementation of CBDCs crosses multiple jurisdictions, each with its own set of laws and regulatory requirements.
Kishi said, “There are other moving parts that we have to address, of course, including legal and regulatory aspect…[and] a standardisation aspect. … If we can consolidate all these moving parts, … we can lay a strong foundation for these types of functionalities to scale.”
Privacy is another significant concern. As central banks move forward with digital currencies, ensuring that transactions are secure and that individuals’ financial data is protected will be a major challenge.
CBDCs’ digital nature makes them inherently more traceable than physical cash, raising questions about how to safeguard user anonymity while maintaining transparency to prevent illegal activities such as money laundering. Establishing a layer of privacy configurations that can balance these competing demands will be complicated yet essential to gain scale.
Solutions will need to be tested and optimised to ensure that CBDCs can meet the demands of a global financial system, supporting millions of transactions without compromising on speed or reliability.
The journey to the successful adoption of CBDCs and digital assets is exciting yet arduous, and Interoperability lies at its core, enabling different financial systems to work together.
Common standards, modular approaches, and collaborative frameworks will help CBDCs move from experimentation to live trials, marking an important milestone and showing that they are a viable tool that can reshape global finance.
Central banks and financial institutions are at the forefront of an era-defining shift, where careful planning, innovation, and collaboration will determine the future of global finance.
As we move forward, the success of CBDCs and digital assets will depend on the collective efforts of all stakeholders—central banks, financial institutions, regulators, and technology providers—to work in unison to build a truly interoperable, efficient, and secure financial ecosystem for the digital age.
