In a significant development, Swift, the international payments group, is planning to build its own blockchain to facilitate faster transactions between banks worldwide. This move is seen as an attempt to compete with the speed and scale of stable coins, which have been gaining popularity in recent times.
Introduction to Swift’s Blockchain Initiative
According to a recent article in the Financial Times, Swift is working with major US banks, including Bank of America, Citigroup, and Natwest, to create a common digital ledger for tokenized products, including stable coins. This blockchain-based ledger will enable the group to process cross-border transactions quickly and validate them using smart contracts.
The use of blockchain technology marks a significant shift for Swift, a cooperative group that facilitates cross-border payments between over 11,500 banks and financial services companies globally. By leveraging blockchain, Swift aims to improve the efficiency and speed of transactions, which is currently a major challenge for traditional banking systems.
Collaboration with Consensys and Testing of Blockchain Technology
Swift is collaborating with Consensys to develop a test prototype of the blockchain-based ledger, which will be tested with participating banks to determine which transactions to prioritize. Earlier this month, the group reportedly tested blockchain messaging on Consensys’ Ethereum Layer 2, Linea.
The growth of stable coins has been rapid, with the market capitalization approaching $300 billion, according to Defi Lama. Tether’s USDT (USDT) currently dominates the stable coin market, with a market capitalization of $174.3 billion. The US government’s recent introduction of stable coin legislation has also spurred banks like JP Morgan Chase and Citi to explore US dollar-backed stable coins.
Adoption of Blockchain Technology by Traditional Banks
Swift is not the only institution exploring the use of blockchain technology to accelerate transaction processing. Traditional banks are at a disadvantage due to the slow pace of conventional payment systems, which can take several days to complete a transaction. In contrast, blockchain-based infrastructure can process transactions in a matter of minutes.
Stable coins pose a threat to traditional banks as they offer a faster, cheaper, and more efficient way to transfer money compared to legacy banking systems. By combining the stability of traditional money with the speed and limitless nature of blockchain technology, stable coins are becoming an attractive alternative for payments, transfers, and settlements.
Qatar National Bank recently announced its plans to use JP Morgan’s Kinexys blockchain to process USD payments, providing customers with faster transactions and 24/7 services. “We can guarantee payments as quickly as in two minutes,” said Executive Vice President of Transactional Banking of QNB Kamel Moris. “It is a treasurer’s dream.”
As the financial landscape continues to evolve, the adoption of blockchain technology is becoming increasingly important for traditional banks to remain competitive. With Swift’s blockchain initiative and the growing popularity of stable coins, it is clear that the future of global transactions will be shaped by the intersection of traditional finance and decentralized technologies.
Source: https://crypto.news/swift-to-launch-blockchain-for-global-transactions/
