Citigroup launches digital token service

Citigroup Inc. debuted a token service that’s part of a broader push to offer digital assets to institutional clients. 

The product — known as Citi Token Services — will transform customers’ deposits into digital tokens that can be sent instantly anywhere in the world, according to a statement Monday. The service is housed in the firm’s treasury and trade solutions division, which has so far focused on using it to improve cash-management and trade-finance capabilities. 

“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,” Shahmir Khaliq, global head of the company’s services division, said in the statement. 

The move is the latest by an established banking giant to offer so-called “tokenized deposits,” or transferable digital coins that represent a claim against banks. Crucially, though, these tokens are processed on blockchain rails, meaning settlement is instantaneous.

For Citigroup’s new offering, the company will rely on a private blockchain owned and managed by the bank, according to the statement. Clients won’t need to set up their own digital wallet and will instead be able to access the service through the bank’s existing systems. 

FED TEST

Citigroup is taking aim at the problem of moving money across borders, which can sometimes take days because of the myriad systems banks and governments use and differing work hours and bank holidays across the globe. 

The new offering comes on the heels of Citigroup’s participation, along with a unit of the Federal Reserve Bank of New York and global banks, in a months-long test of a Regulated Liability Network, which allowed banks to simulate issuing digital money representing their customers’ own funds before settling through central bank reserves on a distributed ledger. That test proved to the Fed that these so-called digital dollars have the ability to improve wholesale payments, and that the use of the ledger didn’t alter the legal treatment of the deposits.

“Frictions related to cutoff times and gaps in the service window will be reduced,” Ryan Rugg, global head of digital assets at Citigroup’s treasury and trade solutions division, said in the statement. “Our solutions within the Citi network are complemented by inclusive and open industry collaboration on initiatives like the Regulated Liability Network.”

JPMorgan Chase & Co. is in the early stages of exploring a blockchain-based digital deposit token for speeding up cross-border payments and settlement, Bloomberg News reported earlier this month. The company has developed most of the underlying infrastructure needed for the tokens, but wouldn’t create them unless the project is approved by regulators. 

SHIPPING IN FOCUS

By focusing some of its initial efforts on trade finance, Citigroup will be bringing digital offerings to an industry long dogged by paper processes and manual procedures. 

The shipping business, for instance, relies heavily on letters of credit from banks so container carriers don’t have to carry large sums of cash to pay suppliers, like the companies that provide them with fuel or provisions. Instead, when a carrier refuels, the shipping company hands that fuel provider a letter of credit from Citigroup. The fuel provider then takes that to Citigroup and asks to be paid.  

With smart contracts, which automatically execute a contract when prearranged terms and conditions are met, that transaction could be processed much faster, with no stacks of paper floating around. 

Citigroup has already tested the new service with a canal authority and A.P. Moller-Maersk A/S, one of the world’s largest ocean-cargo companies. The pilot showed the bank could instantly transfer the tokenized deposits to suppliers based on smart contracts. 

“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, said in the statement. “The innovative solution has promising applications for trade finance.”