Global banking messaging network SWIFT will trial live transactions of tokenized assets and digital currencies next year, it announced on Thursday, the latest step in the currently slow integration of such assets into the wider financial system.
Banks and asset managers have been exploring the “tokenization” of traditional assets like bonds for several years.
They hope that by using digital units – typically blockchain-based tokens that represent a share of the underlying asset – trading can be made faster, cheaper and more efficient, including cutting out the middlemen involved in many transactions.
So far, however, they have failed to gain significant traction in the wider market.
About 90 percent of the world’s central banks are also testing central bank digital currencies (CBDCs), digital versions of fiat money, that facilitate trading in tokenized assets. Monetary authorities are trying to come to grips with the technological advances that have made cryptocurrencies like bitcoin possible.
SWIFT, which plays a key role in global banking, has been engaged in trials of both CBDCs and tokenized assets. In March, he said he would launch a new platform to connect CBDCs currently under development with the existing financial system.
“We are now seeing demands from the industry to get out of that (trial) phase and have digital assets actually go live and have the counterparty pay them in real money against it,” said Nick Kerigan, SWIFT’s head of innovation.
“That’s the phase we’re going into next year, albeit controlled.”
Although the potential is great, the fragmented nature of the market holds it back and very few initiatives have progressed beyond the banks’ internal systems.
Similarly, central banks are testing wholesale CBDCs for cross-border payments, but within small groups.
The latest SWIFT initiative includes different types of digital assets combined on different platforms.
“To successfully trade and settle a tokenized bond transaction, you need cash and that’s where a tokenized deposit or wholesale CBDC comes in,” Kerigan said.
“It’s not good enough if you only have delivery or only payment, you need both.”
© Thomson Reuters 2024
(This story was not edited by NDTV staff and was automatically generated from a syndicated feed.)
