SWIFT global banking system pilots blockchain tech

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The global interbank messaging organization SWIFT is launching a proof-of-concept project using blockchain technology to keep track of cross-border bank funds in real time.

In an announcement Thursday, the Brussels-based cooperative said a private blockchain based on Hyperledger — the open source software project hosted by the Linux Foundation — would monitor so-called nostro accounts of banks that volunteered for the pilot. Nostro accounts are foreign currency reserves maintained by banks in other countries where they do business.

Currently, banks monitor their nostro funds “via debit and credit updates and end-of-day statements,” the SWIFT announcement says.

“The maintenance and operational work involved represents a significant portion of the cost of making cross-border payments,” the statement goes on. Banks typically keep large pools of cash in nostro accounts, so they can settle transactions in that currency.

Although blockchain is the technology underlying digital currencies like bitcoin, the pilot won’t use it to replace the money in those accounts. Instead it will provide all the banks that sign-up with a verifiable real-time record of all transactions in and out of their nostro accounts.

Blockchain, also known as distributed ledger technology, or DLT, uses cryptographically guaranteed record-keeping and distributed computing to create an unforgeable record of a transaction that all parties have access to.

The pilot, which will launch early this year, “will test whether distributed ledgers may be able to help banks reconcile those nostro accounts more efficiently and in real time, lowering costs and operational risk,” SWIFT says.

Despite the pilot, Wim Raymaekers, who heads SWIFT’s global payments innovation initiative sounded a somewhat skeptical note.

“Whilst existing DLTs are not currently mature enough for cross-border payments, this technology, bolstered by some additional features from SWIFT, may be interesting for the associated account reconciliation,” he said in a statement.

The proof-of-concept “gives us the opportunity to test DLT and determine if it can be applied to this particular use case,” Raymaekers added.

SWIFT head of research and development Damien Vanderveken added that the pilot would employ a private blockchain in a “closed user group environment, with specific user profiles,” enabling strict control of user privileges and data access.

“SWIFT will leverage its strong governance, PKI security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT PoC platform for the benefit of its community,” said Vanderveken.

The SWIFT announcement is just a pilot, but earlier this week, another major provider of financial market infrastructure — the Depository Trust and Clearing Corporation — announced that it would be using a Hyperledger blockchain for real — in the reconciliation of credit derivative transactions.