Citi and Fidelity debut tokenised MMF and digital FX swap solution

Citi and Fidelity International have announced the proof-of-concept of an on-chain money market fund (MMF) with digital foreign exchange (FX) swap solution which demonstrates real-time settlement. This on-chain solution could enable investors to conduct seamless and real-time settlement of multi-asset positions in different currencies.

The successfully tested solution — a tokenised MMF with an embedded digital FX swap — has the potential to enable faster, seamless management of treasury positions, eliminate delays and improve efficiency. It could also enable investors to access higher yields on foreign cash funds while managing liquidity and FX risk in real-time. For example, a corporate treasurer holding non-USD working capital could invest in US dollar denominated MMFs (USD MMFs) to enhance portfolio diversification and yield potential while ensuring continuous operational liquidity.

The proof-of-concept results from a collaboration between Citi and Fidelity International. It shows that the solution could run faster, programmable multi-asset transactions on-chain, which is currently not possible with traditional market infrastructure.

Citi and Fidelity International explored smart contracts to synchronise settlement of simulated FX swaps and issuance/redemption of simulated MMF tokens, leveraging interoperability protocols to connect separate networks. They also tested built-in fund token standards designed to ensure compliance with on-chain permissions throughout the entire fund lifecycle.

Tokenisation refers to the creation of tokens on a blockchain to record information about underlying assets and liabilities including their attributes or characteristics, status, transaction history, and ownership. Tokenised MMFs are expected to be the fastest-growing digital asset class, reaching US$400bn by 2030, according to McKinsey. The BIS Quarterly Review from December 2023 found that USD MMFs have a large number of issuers with over US$6.1 trillion in assets under management.

To access USD MMFs while mitigating FX risk, non-USD investors currently book and manually reconcile FX hedging separately. This can create friction, timing mismatches and FX transaction risks. A settlement delay can also prevent precise, real-time liquidity management. Tokenised MMFs with digital FX swaps would potentially enable faster, near-instant transactions, and increase liquidity and efficiency.

The Citi and Fidelity International collaboration is under the MAS’ Project Guardian, a global collaboration between policymakers and key industry players to enhance liquidity and efficiency of financial markets through asset tokenisation.

“As tokenisation continues to evolve in capital markets, we see a potential future in which investors could trade and settle digital assets in real-time, in different currencies, and across multiple distributed ledger technology platforms,” commented Sam Hewson, Global Head of FX Sales at Citi. “FX markets could enable investors to quickly and efficiently access digital assets globally, with timely liquidity. This innovation could also open potential opportunities to address broader goals, such as portfolio diversification and risk management.”

 

Fed and BoE both make further interest rate cuts 

Both the Federal Reserve and the Bank of England have cut interest rates by 25 basis points (bps). In the UK, the BoE cut its bank rate from 5% to 4.75%. The bank’s Monetary Policy Committee (MPC) voted 8-1 in favour of the 25 bps cut, with one member preferring to maintain the rate at 5%. 

The UK has seen continued progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly. CPI inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year as weakness in energy prices falls out of the annual comparison. Services consumer price inflation has declined to 4.9%. Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August. Headline GDP growth is expected to fall back to its recent underlying pace of around 0.25% per quarter over the second half of this year. The MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.

Commenting on the Bank of England cutting rates as UK investments get boost following controversial Budget, Douglas Grant, Group CEO of Manx Financial Group, said: “The Bank of England’s decision to lower interest rates to their lowest level since last June aligns with positive news that UK inflation has fallen below the 2% target for the first time in over three years. This policy shift, alongside controversial Autumn Budget fiscal plans, provides a potential boost for UK investments after a period of economic stagnation. However, high input costs and possible inflationary pressures from the Chancellor’s measures mean that businesses must adapt their lending strategies to stay resilient in a still uncertain market.

In the US, the Federal Reserve also cut its interest rate by 25 bps, taking the target range for the federal funds rate down to 4.5-4.75%. A statement from the Fed noted that recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labour market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Federal Open Markets Committee’s (FOMC’s) 2% objective but remains somewhat elevated.

The FOMC seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. The statement noted that the committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the FOMC is attentive to the risks to both sides of its dual mandate.

In considering additional adjustments to the target range for the federal funds rate, the FOMC statement said it will carefully assess incoming data, the evolving outlook, and the balance of risks. It will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. 

 

UBS pilots blockchain-based multi-currency payment solution

Cross-border payments often lead to delayed settlements, which can create a fragmented view of liquidity positions for companies. UBS Digital Cash aims to increase transparency and security with blockchain-based payments, which should in turn facilitate timely payment processing. In addition, companies should be able to manage intraday-liquidity and adjust liquidity buffers on their accounts more easily in the future, thanks to greater visibility of their total cash positions.

In the pilot, transactions with multinational clients and banks were successfully carried out, including domestic transactions within Switzerland and cross-border payments in US dollars, Swiss francs, Euros and Chinese yuan. In addition to that, the pilot also included the transfer of liquidity between various UBS companies. UBS plans to expand and develop its UBS Digital Cash offering in further steps.

Pilot participant Janko Hahn, Head Treasury Operations at Autoneum, says: “The UBS Digital Cash pilot showcased the key advantages of blockchain-based payment solutions. They make cross border transactions faster, on time and provide a seamless traceability, which is a huge benefit when operating in a global market.”

Xiaonan Zou, UBS Head Digital Assets, Group Treasury, adds: ”We see the interoperability between UBS Digital Cash and other digital cash initiatives as key for the financial industry. In addition to their role in correspondent banking, they also have the potential to streamline and simplify the settlement of tokenised assets in the capital market.”

For the payment process, UBS Digital Cash uses a private blockchain network to which only the permissioned clients have access. The settlement is performed via smart contracts, which, for example, automatically execute payments as soon as predefined conditions are met. Client transfers at UBS are recorded and processed in a digital system for recording transactions – independent of currency, practically in real time and around the clock. 

 

Ant International deploys AI to enhance and protect cross-border payments

Ant International has been intensifying its integration of AI technologies to enhance and secure millions of daily cross-border transactions for merchants across over 200 global markets.

Leveraging AI, the company can now predict currency exchange rates not only on a daily or weekly basis but also on an hourly scale. This advanced AI model, developed over several years, enables precise forecasts for both inbound and outbound transactions, helping merchants reduce transaction costs and allowing them to allocate more resources toward business growth.

The new AI-powered FX model has the capacity to consolidate hundreds of existing models into a single, more accurate system. However, relying heavily on one model to process millions of daily transactions also introduces risks. “We have safeguards in place to ensure human intervention if discrepancies arise between the new and old models,” says Yang Peng, Chief Executive Officer of Ant International. “We avoid having blind faith in AI, maintaining checks to uphold accuracy.”

Advancements in generative AI, particularly deepfake technologies, are posing significant security challenges for financial institutions, as these sophisticated forgeries are increasingly difficult for humans to detect. To counteract AI-assisted cyberattacks, Ant International has developed an anti-deepfake electronic Know Your Customer (e-KYC) tool over two years. This tool has an interception success rate exceeding 99%.

 

Nium and Kinexys by J.P. Morgan rollout account validation services in Asia

Nium has announced an expansion to its global collaboration with Kinexys by J.P. Morgan (formerly Onyx by J.P. Morgan), with the cross-border payments company being the first fintech to provide data that helps validate bank account details used in international payments to Malaysia, Thailand, and Hong Kong. 

Nium Verify will provide data to Confirm, an application developed by Kinexys, designed for the exchange of global account validation information. The solution is used to validate beneficiary account details in real-time, prior to payment, which should significantly reduce the likelihood of errors and failed payments when making cross-border transactions.  

Institutions across the globe experience a high number of payment returns and fraud due to the inability to verify account information in real time prior to payment processing. This results in unnecessary fees, payment delays, and customer experience issues. Based on a market evaluation of high-value payment returns in 2020, there is an opportunity to save millions of dollars on high value payments and three to four days of payment-related delays. 

Nium is providing data from Nium Verify to Liink, developed by Kinexys by J.P. Morgan’s blockchain business unit, which provides scalable solutions and creates ecosystems that transform the way information, money, and assets move. Liink is a bank-led, peer-to-peer network that facilitates secure and private information and capability exchange between dozens of sophisticated global institutions, such as banks, credit unions, fintechs and digital banks, among others.  Built on a private, permissioned blockchain network, Liink enables participants to share information across its network, all while maintaining the three fundamental properties of information sharing: sovereignty, security and privacy. 

 

BNZ and BlinkPay to accelerate open banking in New Zealand

Bank of New Zealand (BNZ) has purchased open banking fintech BlinkPay. The investment is designed to enable BlinkPay to accelerate and scale its innovation and product development through access to BNZ’s resources and expertise.

The partnership will focus on developing new open banking capabilities that improve financial outcomes for consumers and businesses across Aotearoa New Zealand.

With BNZ as BlinkPay’s new owner, co-founder Adrian Smith becomes the fintech’s CEO, ensuring BlinkPay retains its own leadership and decision-making, along with its entrepreneurial spirit and startup culture.

“As a Māori-led business, we bring a unique perspective to financial innovation,” Smith says. “BNZ understands and values this – and they’re backing our vision while enabling us to retain our startup DNA.”