Kaleido Enables Swift’s New CBDC Sandbox with Broad Industry Participation

The live sandbox developed for Swift by Kaleido hosts 18 central banks and commercial banks to help define the future of CBDCs in cross-border payments. The solution has been "tested across almost 5,000 transactions between two different blockchain networks and a traditional fiat currency," according to published results.

Digital currencies have the potential to quicken settlements across borders, add transparency to global markets, and reach unbanked populations. These next generation banking systems will have a major impact on our global economy. That’s why Kaleido is proud to announce the completion of a new CBDC sandbox for Swift, the global provider of secure financial messaging services. Eighteen central banks and commercial banks are actively participating in testing to accelerate a path to full deployment.  

Enabled by Kaleido and leveraging Hyperledger FireFly, the sandbox demonstrates that CBDC-initiated cross-border payments can plug into Swift’s enhanced platform exactly as real-time gross settlement (RTGS) payments do. This is facilitated using Swift's newly designed CBDC connector gateway. The goal of the experiment is to assess the potential to use CBDCs in cross-border payments and get real-time feedback on potential strategies.

“Kaleido’s sandbox enabled us to deploy the technical infrastructure developed for our CBDC experiments in an open testing environment. As such, the sandbox is an important component in getting the feedback from our community that we need to develop further iterations of our CBDC solution,” said Nick Kerigan, Managing Director, Head of Innovation, Swift.

With more than 100 countries now in various stages of CBDC research and development around the world, projects like the CBDC Sandbox can demonstrate a secure interoperability architecture for processing cross-border payments with digital currency, including how best to use intermediaries, what message types are required to define flows, and how processing logic is defined within each CBDC network.

In the sandbox, Kaleido facilitates two independent simulated national CBDC networks with a central bank and commercial banks operating nodes on the network. Via Kaleido’s secure platform for hosting CBDC infrastructure, each organization runs the same version of the software while maintaining isolation and control of its data and users. The initial sandbox launch focused on demonstrating interoperability between completely different DLT technologies including Corda-based and Quorum-based CBDC reference networks.

“Interoperability and interlinking is going to be vital as CBDCs rapidly emerge into the digital landscape,” said Steve Cerveny, Founder and CEO of Kaleido. “Projects like this help shape the future of CBDC designs and ensure that we end up with solutions that truly raise the bar for faster and cheaper flow of value around the world. ”

The CBDC experimental solution introduces a connector gateway architecture for the CBDC networks. As existing rails will continue for some time, it is also important to demonstrate integration with existing RTGS solutions. Kaleido provided assistance to implement the connector gateway in addition to the hosting of the CBDC infrastructure.

Results Start Coming In

In March 2023, Swift announced early results from their CBDC sandbox after 12 weeks of testing. Overall feedback was extremely positive, with participants seeing “clear potential and value” in Swift’s solution and supporting further development for additional use cases.  

A few key points from the report, which is available for download here, include:

• “Intermediaries are likely to continue to be commonly used to facilitate cross-border CBDC transactions.”
• “Participants agreed that CBDC networks could be implemented using permissioned DLTs or centralised architectures, due to ongoing privacy and regulatory concerns with Public DLT implementations.”
• “Whilst the sandbox simulated CBDC networks using the DLT technologies Corda and Quorum, some participants are using proprietary technologies and non-DLT technologies to build their CBDC networks. A number of participants are also exploring further private/permissioned DLT’s such as Hyperledger Fabric in particular and Swift will look to support this technology, along with other proprietary and centralised architectures, in the future development of the solution.”
• “Participants asked us to consider implementing a further enhanced atomicity scheme, whereby the solution orchestrates simultaneous atomic settlement between the participating networks. Thanks to the orchestration capability of our enhanced platform, we can further develop the solution to enable the escrow fund to be orchestrated simultaneously; as such, the Swift platform will know the escrow condition of the transaction.”
• “Careful consideration should be given by authorities in deciding whether a message containing PII should be stored in their CBDC network. In cases where it is decided that PII should not be stored in network, it would be possible to store a hash of the message, then send the message securely via out-of-band channels such as API. This was demonstrated in the CBDC sandbox’s Quorum network leveraging Hyperledger FireFly’s private messaging capabilities.”
• “In terms of further use cases, participants cited that Delivery-versus-Payment (DvP) and more sophisticated Payment-versus-Payment (PvP) mechanisms would be highly relevant and identified potential use cases in securities settlement, trade finance and conditional payments.”

With the initial test of the CBDC sandbox showing that the experimental interlinking solution achieved the interoperability needs of central and commercial banks, there are plans for further development and experimentation as the solution moves toward a beta version.