To be successful in the digital economy, businesses must consider financial exchange (FX) related risks and costs when expanding abroad. With firms spending roughly $120billion (S$154.2billion) on cross-border transaction fees, alternatives are being sought after. According to a new report from the Project Guardian FX industry group, implementing tokenised bank liabilities and shared ledgers in cross-border payments and FX is a viable solution.
Project Guardian, run by the Monetary Authority of Singapore, is a global collaboration between policymakers and key industry players to enhance liquidity and efficiency of financial markets through asset tokenisation. Key members in the FX industry group that put the report together include the International Swaps and Derivatives Association (ISDA) and Ant International. The report also saw contributions from BNY, HSBC, OCBC and the Global Financial Markets Association’s Global Foreign Exchange Division.
Drawing on the partners’ expertise and FX payment experience, the report proposes:
- Design principles for tokenised bank liabilities to standardise industry practices and enable interoperability;
- Key risks and mitigation actions for shared ledger-based payments; and
- Use cases showcasing real-world shared ledgers and tokenised payments in transaction banking.
As a Project Guardian participant, Ant International also leveraged its blockchain-based Whale platform to develop a global treasury management use case for real-time multi-currency clearing and settlement.
Kelvin Li, general manager of platform tech at Ant International, said: “We are honoured to help shape industry adoption of tokenisation with ISDA under Project Guardian’s leadership. Since 2019, Ant International has used tokenised deposits to streamline wholesale payments and treasury activities.
“We now process over a third of our transactions on-chain. In addition to faster, cheaper and more secure cross-border payments, tokenisation programmes are translating technology into more competitive FX rates and faster FX settlement for customers. We will continue evolving our Whale platform to serve businesses of all sizes with the latest shared ledger technology, such as tokenised deposits and stablecoins.”
Benefits of tokenised bank liabilities and shared ledgers
Cost, limited settlement windows and time zone delays are just some of the hurdles with the current FX system, according to a joint report from Oliver Wyman and JP Morgan. Tokenised bank liabilities and shared ledgers tackle these challenges directly.
By enabling interoperability between bank solutions, payments can be completed 24/7 with FX settlement conducted in real-time. Payment settlement time is also reduced to minutes or even seconds, providing a more seamless payment experience for businesses and their customers.
However, a universally accepted industry framework is needed for industry-wide adoption, which could lower cross-border transaction costs by 12.5 per cent, saving businesses more than $50billion (S$64.2billion) by 2030.
ISDA and Ant International, together with the Project Guardian industry group, will continue to broaden the applications of shared ledgers and tokenised bank liabilities by developing more use cases for the digital economy. This includes integrating with existing banking systems and supporting other digital assets so that businesses big and small can benefit from this innovative technology.
Tokenisation in the cross-border sector
Scott O’Malia, chief executive of ISDA, said: “Tokenisation has the potential to revolutionise cross-border payments and FX settlements, significantly increasing efficiencies and reducing costs and risks. Our work with MAS and the industry group has highlighted the critical importance of common standards and industry documentation to support the safe and efficient use of tokenised bank liabilities, and this will continue to be a focus for ISDA as we further develop the potential for tokenisation.”
Kenneth Gay, chief fintech officer, MAS, said: “The use of tokenised bank liabilities marks a milestone in the evolution of cross-border payments and FX settlements. Underpinned by shared ledger infrastructures, tokenised bank liabilities can enable 24/7, real-time settlement across borders and help optimise liquidity management in transaction banking. Together with members of Project Guardian, we look forward to advancing efforts towards more efficient global financial markets.”
