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Citi launches blockchain-based token services for cash management and trade finance

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(Kitco News) - Citigroup, the American multinational investment bank and financial services corporation, has become the latest firm to wade into the blockchain waters as Citi Treasury and Trade Solutions (TTS) has announced the creation and pilot testing of the Citi Token Services for cash management and trade finance.

According to a Monday press release, the Citi Token Service uses blockchain and smart contract technologies to deliver digital asset solutions for institutional clients and will integrate tokenized deposits and smart contracts into Citi’s global network to upgrade the firm’s core cash management and trade finance capabilities.

“Institutional clients have a need for ‘always-on’, programmable financial services and Citi Token Services will provide cross-border payments, liquidity, and automated trade finance solutions on a 24/7 basis,” Citi said.

The move makes Citi the latest traditional bank to offer “tokenized deposits,” which are transferable digital coins that represent a claim against the bank. The main benefit of tokenized deposits is that they take place on the blockchain, which means settlement is instantaneous.

“Digital asset technologies have the potential to upgrade the regulated financial system by applying new technologies to existing legal instruments and well-established regulatory frameworks,” said Shahmir Khaliq, global head of services at Citi. “The development of Citi Token Services is part of our journey to deliver real-time, always-on, next-generation transaction banking services to our institutional clients. This development goes hand-in-hand with our industry-leading work on the Regulated Liability Network to create interoperable digital asset solutions on a multi-bank basis.”

To create the new service, Citi worked with Maersk and a canal authority to digitize a solution that serves the same purpose as bank guarantees and letters of credit in the trade finance ecosystem.

Citi ran a pilot project that utilized blockchain technology to provide buyers and sellers with a digital process for instant payment capabilities in an effort to reduce transaction processing times from days to minutes. “The pilot successfully demonstrated the programmable transfer of tokenized deposits that provided instant payments to service providers via smart contracts,” the release said.

“We are pleased to have collaborated with Citi in the successful test pilots for the guarantee solution using digitized tokens and smart contracts,” Marie-Laure Martin, regional treasury manager for the Americas at Maersk. “The innovative solution has promising applications for trade finance.”

Citi Token Services has also been applied to a global cash management pilot, enabling clients to transfer liquidity between Citi branches on a 24/7 basis.

“Citi Token Services provides corporate treasurers with a new tool to manage global liquidity on a just-in-time, programmable basis,” said Ryan Rugg, global head of digital assets at Citi Treasury and Trade Solutions. “Frictions related to cut-off times and gaps in the service window will be reduced.”

Citi said the private/permissioned blockchain technology used in the new offering is owned and managed by the bank, and clients will not be required to host a blockchain node to access the services.

“Citi continues to develop digital asset solutions, in line with its goals and risk appetite, using a unified set of shared technology capabilities and a common strategic approach,” the release said. “These innovative solutions enhance Citi's products and services including digital money, trade, securities, custody, asset servicing and collateral mobility.”

TTS has been granted banking licenses in over 90 countries and globally integrated technology platforms, and “continues to lead the way in offering a comprehensive range of digitally enabled treasury, trade, and liquidity management solutions,” Citi said.

Citi survey shows 74% of financial institutions are engaging with distributed ledger technology

The new service follows Citigroup’s participation in a months-long test of the Regulated Liability Network (RLN), a theoretical payment infrastructure designed to support the exchange and settlement of regulated digital assets, including a digital dollar.

The study included three workstreams that analyzed the technical feasibility, business applicability, and legal viability of using shared ledger technology to settle private bank liabilities through the transfer of central bank digital currencies (CBDCs). The test ultimately proved that digital dollars have the ability to improve wholesale payments and that the use of a ledger didn’t change the legal treatment of the deposits.

“The experiment successfully simulated both domestic and cross-border scenarios, identifying shared ledger technology as a potential solution to support payment innovation,” the Federal Reserve Bank of New York's New York Innovation Center (NYIC) said.

JPMorgan, the largest bank in the U.S. by assets, is also reportedly in the early stages of exploring the creation of a blockchain-based digital deposit token designed to speed up cross-border payments and settlement and has already developed most of the underlying infrastructure needed for the new payment vehicle to work, but is waiting on final approval from U.S. regulators before they actually create the token.

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