Swift Tokenized Transaction Tests Aim to Bridge ‘Digital Islands’

Swift wants to let banks test tokenized transactions on its global messaging network. Beginning next year, financial institutions (FIs) will be able to carry out pilot transactions for settling digital assets and currencies, Swift announced Thursday (Oct. 3), in hopes of demonstrating how FIs can transact interchangeably across asset and currency types using their Swift connection. The messaging organization says this marks a major advancement from its past experiments, focusing deliberately on interlinking and orchestration capabilities for real-world solutions. “These trials aim to address a key challenge in the continuously evolving digital asset market: the rise of disconnected digital platforms, or ‘digital islands’, that could hinder more widespread adoption and ease of use for new forms of value,” Swift said in a news release. The release notes that 134 countries are exploring central bank digital currencies (CBDCs), with the size of the tokenized asset market projected to reach $30 trillion by 2034. And 91% of institutional investors have shown interest in tokenized assets. “While the scale is impressive, without interconnectivity between platforms, global adoption is set to remain fragmented,” the release adds. “The live trials will leverage our existing global network to interlink various digital and traditional currency platforms, providing a single system for banks to transact across borders with digital and fiat currencies and further aiding this new market to grow.” Leading into the trials, Swift notes, organizations like the Hong Kong Monetary Authority and Banque de France are using Swift’s capabilities to experiment with foreign exchange applications, as part of the European Central Bank’s exploration of new technologies for wholesale payments. Swift’s announcement follows a month in which tokenized deposits — digital holdings that are fiat currency and not just backed by fiat — received a lot of attention. “In a spate of recent announcements, a far-flung roster of players — monetary authorities, banking consortiums and, of course, banks — have announced pilots and other programs that are aimed at testing the real world application of those deposits that settle in central bank money,” PYMNTS wrote last week. A report in early September by Citigroup found that 65% of the corporations it surveyed planned to use options other than CBDCs, including tokenized deposits, to support digital securities settlements by 2026. And as noted here over the summer, deposit tokens can also be woven into banking infrastructure, providing for smooth interoperability with traditional banking services. “This integration ensures that users can see the benefits of blockchain technology without abandoning the familiar framework of their existing financial systems,” PYMNTS wrote.