Citigroup Inc. has introduced Citi Token Services, a new blockchain-based cash management and trade finance solution for institutional clients.
According to Bloomberg, this service converts customer deposits into digital tokens, which can be instantly transferred internationally.
“The announcement by Citi is important for a couple of reasons,” said James Wester, Director of Cryptocurrency, and Co-Head of Payments at Javelin Strategy & Research. “First, the use of tokenized deposits to address cross-border payment flows validates an important use case that has been viewed as a potential application for enterprise blockchain for some time. Second, by applying the tool to trade finance, Citi is addressing another area that has long been viewed as inefficient.”
“Using tokens to settle payments instantly anywhere in the world is a big improvement to an area that has relied on processes that have been in place for generations,” he said.
A Tokenized Endeavor
Traditional methods often involve delays due to different financial systems and operating hours across regions.
The primary goal of Citi Token Services is to address cross-border money transfer challenges, and provide clients with a real-time, 24/7 transaction banking experience.
Earlier this year, Citigroup participated with the Federal Reserve Bank of NY to test a digital dollar. The effort demonstrated the potential of shared ledgers and tokenized assets to enhance wholesale payments, as reported in PaymentsJournal. With its new blockchain project, Citi is competing with JPMorgan Chase, which is also exploring blockchain-based digital deposit tokens for cross-border payments.
Citi Token Services is expected to have a significant impact on trade finance, an area burdened by paper-based processes. The shipping industry, in particular, relies heavily on letters of credit from banks. Smart contracts, a key element of blockchain technology, could streamline these processes.
According to Bloomberg, Citigroup has already conducted successful pilots with a canal authority and A.P. Moller-Maersk A/S, a major ocean-cargo company, demonstrating the instant transfer of tokenized deposits to suppliers through smart contracts.
