Key Takeaways

• Citi introduced Citi Token Services, leveraging blockchain and smart contracts for digital asset solutions in cash management and trade finance.
• Citi Token Services is focused on transforming core cash and trade operations.
• Citi partnered with Maersk to digitize a trade finance solution akin to bank guarantees and letters of credit.

A token service was launched  by Citigroup Inc. (Citi) as part of a larger initiative to make digital assets available to institutional clients.

In a statement on Monday, September 18, 2023, Citi introduced Citi Token Services, which will transform customer deposits into digital tokens for swift global transmission.

The company’s treasury and trade solutions division has primarily focused on improving cash management and trade finance through this service.

“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,” global head of the company’s services division Shahmir Khaliq stated .

Pioneering Fast Cross-Border Transfers with Tokenized Deposits

This initiative is the latest from a major bank to provide “tokenized deposits,” digital currency substitutes backed by the bank’s claim. Crucially, these tokens utilize blockchain for rapid settlement.

According to the release, Citigroup will utilize a private blockchain which the bank owns and operates for its new product. Customers can access the service using the bank’s current systems without having to create their own digital wallet.

Fed Testing

Citigroup aims to address delays in cross-border money transfers, often caused by diverse systems, work schedules, and holidays worldwide.

Previously, Citigroup participated in a lengthy test of a Regulated Liability Network with the Federal Reserve Bank of New York and international banks. This experiment demonstrated the potential benefits of digital dollars for wholesale payments without affecting their legal treatment.

Ryan Rugg, Global Head of Digital Assets at Citigroup’s treasury and trade solutions division, highlighted  how their solutions, backed by industry collaboration like the Regulated Liability Network, can reduce frictions caused by cutoff times and service window gaps.

Just as a reminder, JPMorgan Chase & Co. is also investigating the possibility of using a blockchain-based digital deposit token  to expedite cross-border payments and settlement.

The company has developed most of the foundational technology necessary for the tokens, but they will not be created until the project secures regulatory approval.

Focusing on Shipping

Citigroup will be bringing digital products to an industry long plagued by paper processes and manual procedures by concentrating part of its initial efforts on trade financing.

For instance, the shipping industry extensively relies on bank letters of credit so that container carriers don’t need to carry significant sums of cash to pay vendors, such as the firms that supply them with fuel or supplies. Instead, the shipping business gives the fuel supplier a letter of credit from Citigroup when a carrier refuels. The fuel supplier then presents that to Citigroup and requests payment.

Smart contracts, which automatically execute when meeting predetermined terms and conditions, could significantly expedite such transactions. There wouldn’t be any piles of paper lying around either.

One of the biggest ocean-cargo businesses in the world, A.P. Moller-Maersk A/S, and a canal authority have already tested Citigroup’s new service. The pilot demonstrated that the bank could use smart contracts to rapidly transfer tokenized deposits to suppliers.

Marie-Laure Martin, regional treasury manager for the Americas at Maersk said  the company is happy to have collaborated with Citi in the successful test pilots for the guarantee solution using digitized tokens and smart contracts. She added that ”the innovative solution has promising applications for trade finance.”