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Trade finance to play substantial role in tokenised real-world assets market by 2034 - Industry roundup: 1 July

Trade finance to play substantial role in tokenised real-world assets market by 2034

Demand for overall tokenised assets could reach US$30.1 trillion by 2034, and trade finance assets could become one of the top three tokenised assets globally, at 16% of the total. This is one of the key findings in a paper published by Standard Chartered and Synpulse.

‘Real-World Asset Tokenisation: A Game Changer for Global Trade’ notes that global trade is projected to reach US$32.6 trillion globally by 2030, and this, combined with growing industry digitisation and the specific features of real-world trade finance assets, makes it an ideal category to originate tokens. The tokenised assets sector mainly comprises traditional assets like US treasuries and money market funds. However, the supply side is still in its infancy, with the total value of tokenised assets (excluding stablecoins) at around US$5bn in early 2024.

Despite its attractiveness as an opportunity to diversify risk, trade finance assets are underinvested due to a lack of familiarity, pricing inconsistency and operational intensity. Tokenisation has the potential to address these challenges while also reducing information asymmetry and offering transparency to investors.

Digital representations of real or traditional assets in the form of a token or distributed ledger enable operational efficiency and automation. The most critical benefits are their ability to deliver enhanced access to new asset classes and improved financial market infrastructure, opening doors to innovative applications in decentralised finance (DeFi) and new business models.

Tokenisation in trade finance is also seen as an opportunity to tackle the growing trade finance gap – estimated to be US$2.5 trillion globally. In addition to improving market access and increasing resilience and liquidity of supply chains, it also increases the ability to reach suppliers in the deeper tiers of supply chains.

 

Banque de France and HKMA unlock CBDC cross-border opportunities

The Banque de France (BdF) and the Hong Kong Monetary Authority (HKMA) have announced a collaboration relating to wholesale central bank digital currency (CBDC). The BdF and the HKMA have maintained a close partnership in promoting financial innovation. The latest collaboration is the HKMA’s participation in Wave 2 of the European Central Bank (ECB)’s Eurosystem exploratory work, marking a milestone as a significant central banking institution outside the Eurosystem participating in the initiative.  

The two central banking institutions recently entered into a memorandum of understanding (MoU), which signified a step forward in bilateral cooperation to foster innovation in the wholesale CBDC and tokenisation market.

The pair will delve into the study of interoperability between their wholesale CBDC infrastructure, i.e. the BdF’s DL3S and the HKMA’s Project Ensemble Sandbox, focusing on real-time cross-border and cross-currency payments.  The cross-border experiment aims to explore how to optimise settlement efficiency of cross-border transactions and facilitate interoperability between financial market infrastructures in different jurisdictions.

Under the MoU, the BdF and the HKMA agreed to strengthen communication and collaboration, as well as to lay the foundations for further efforts on tokenisation and new technologies.

 

UK business confidence fell back in June

The latest Lloyds Bank Business Barometer has found that overall business confidence in the UK fell by 9 points to 41% in June. Despite falling from May’s highs, this latest confidence reading is consistent with levels seen during Q1 2024, before the sharp rise in May.

The Barometer measures businesses’ overall confidence by assessing their trading prospects and optimism for the economy. June’s result of 41% is considerably higher than the long-term average of 28%, pointing to a continued positive outlook from firms.

June’s Barometer also highlighted that respondents’ views regarding their trading prospects remain robust. However, the data suggests the positive sentiment shared by some businesses about their trading prospects at the beginning of the year has started to ease. 53% of businesses reported stronger output expectations, while 9% anticipated weaker output. The resulting net balance fell by 10 points to 44%, the lowest reading since December 2023.

Businesses’ economic optimism also remains robust at 39%, despite a dip of seven points. This is still higher than the results recorded in Q1 2024, with 55% of respondents saying they felt more positive about the economy compared to three months ago – down from 62% in May – while 16% were more negative – unchanged from May.

Firms’ own price expectations fell to an 11-month low, as 57% of businesses intend to increase their prices over the next 12 months, while 4% said they plan to lower prices, leaving the resulting net balance at 53%.

Results across the sectors were mixed in June, as three of the four sectors saw a decline in trading prospects. Construction fell 16 points to 42%, and there were other notable decreases in retail (down 14 points to 35%) and services (down 11 points to 46%). Manufacturing, however, bucked this trend, increasing by two points to 51%.

 

MAS expands industry collaboration to scale asset tokenisation for financial services

The Monetary Authority of Singapore (MAS) has announced the expansion of initiatives to scale asset tokenisation for financial services. This includes partnering with global industry associations and financial institutions to drive common asset tokenisation standards in fixed income, foreign exchange (FX) and asset and wealth management. MAS, with international financial institutions, also announced the successful completion of the first phase of the Global Layer One (GL1) initiative and plans to develop standards, market practices and governing principles of foundational digital infrastructure for tokenised assets.

Over the past two years, MAS has worked with 24 financial institutions to pilot promising asset tokenisation use cases under Project Guardian. These financial institutions include asset managers, market operators, custodians, credit rating agencies and commercial banks. To promote greater traction in these use cases, MAS has welcomed the Global Financial Markets Association (GFMA), International Capital Market Association (ICMA) and the International Swaps and Derivatives Association (ISDA) as the first global industry associations to join Project Guardian’s industry group. 

Building on the successes of industry pilots, the following three workstreams will be set up to foster the development of standards and frameworks across key asset classes: 

  • Fixed income workstream will work with ICMA to develop protocols and data specifications building on ICMA’s Bond Data Taxonomy, and consider the types of risk factors and disclosures required in a tokenised bond offering document. Workstream members will also partner GFMA to develop standard clauses for implementing smart contracts of fixed income products.  
  • FX workstream, in partnership with ISDA and the Global Foreign Exchange Division (GFXD) of the GFMA, will develop FX data specifications, risk management frameworks, and FX documentation.
  • Asset and wealth management workstream will deepen collaboration with global custodians and asset managers, focus on common data models, and model risk considerations specific to fund tokenisation. 

To effectively scale tokenised asset transactions globally, MAS says there is a need for a shared ledger infrastructure that can host multiple types of tokenised financial assets while meeting relevant regulatory requirements and preserving the policy autonomy of participating jurisdictions. Under the GL1 initiative, MAS is collaborating with international policymakers and financial institutions, including BNY, Citi, J.P. Morgan, MUFG Bank, Ltd., and Societe Generale-FORGE (SG Forge) on the business, governance, risk, legal and technology considerations of a shared ledger infrastructure. International policymakers observing the GL1 initiative include staff from the European Central Bank, Banque de France and the International Monetary Fund.

 

How India became the world's emerging services factory

As the world has grown more wired and interconnected, countries have been able to export more kinds of services. Globally, services exports have roughly tripled since 2005, now making up 7% of the world's GDP in 2023. Only two countries' services exports grew faster than India's, according to Goldman Sachs Research.

India's services exports grew from US$53bn to US$338bn between 2005 and 2023 – almost double the rate of the rest of the world – and now form nearly a tenth of the national GDP. Its growth has outstripped that of India's exports of material goods. In their baseline forecast, our economists expect India's services exports to touch 11% of GDP by 2030 and to be valued at around $800 billion.

Through the last two decades, computer services formed the dominant category in India's services exports – a dynamic that continues today. In 2023, this category comprised nearly 47% of all services exports. 

The specialised services hubs that companies have opened in India are called global capability centres, and they are based overwhelmingly in the major cities. The revenues of Indian GCCs have quadrupled over the last 13 years to US$46bn in the 2023 fiscal year. The number of GCCs has more than doubled from 700 to 1,580 in that period, and the sector has added around 1.3 million employees, taking the total employee headcount to 1.7 million in the 2023 fiscal year.

 

Afreximbank and the WTO Secretariat harmonise efforts to develop trade in Africa

African Export-Import Bank (Afreximbank) has signed an MoU with the World Trade Organization (WTO) to amplify the impact of their strategically aligned joint efforts to promote global trade, leveraging Africa’s unique resource endowment. The MoU will allow the two organisations to pursue a collaborative framework for harmonising and coordinating their efforts to deepen key trade development activities on the continent.

Afreximbank and the WTO are part of an inter-agency partnership that is championing transformative change in the cotton industry in Africa’s Cotton-4 plus (C4+) countries, which include Benin, Burkina Faso, Chad and Mali as well as Côte d’Ivoire as an observer. The MOU will allow the Bank and the WTO Secretariat to expand and deepen their collaboration to support the cotton sector beyond the C4+ countries. Their support will entail the development of local and regional value chains of cotton in Africa and their integration into the global value chain.

Another area of collaboration under the understanding will be on trade finance matters, addressing non-tariff barriers to trade, the digital economy, capacity building, the oceans’ economic and fisheries subsidies, the sports and creative economies and trading in the context of the African Continental Free Trade Agreement.

The C4+ countries have historically exported raw cotton for processing outside the continent. Developing local industries to process and transform cotton into textiles could potentially create 500,000 jobs in the West African region. If harnessed well, it is expected that within the next ten years, the C4+ countries could process up to 25% of their cotton crops. This undertaking requires around US$5bn investment in production facilities and worker training. In turn, this calls for capacity building, access to finance for businesses, and improved infrastructure.

 

NatWest leads documentation for Deliveroo’s £140m RCF

Deliveroo sought to refinance its existing post-initial public offering (IPO) facility with a new £140m revolving credit facility (RCF). As NatWest has been a strategic banking partner for the company, it mandated the bank as facility and security agent, and documentation coordinator, of the RCF.

The NatWest deal team led on the documentation process, which included negotiating the senior facilities agreement (SFA) with the syndicate banks and will involve them continuing to act as the ongoing agent. The deal team helped execute the transaction successfully within the deadline and offered market insight to support Deliveroo’s decision-making.

As a result of the deal, Deliveroo welcomed two new relationship banks into the syndicate, with NatWest continuing to take a tier 1 hold of £30m.  

“This is an important transaction for Deliveroo, marking our first refinance since our IPO in 2021 and selecting the syndicate of banks to support the next phase of our growth journey,” said Alexander Hent, Vice President Tax & Treasury at Deliveroo. “We are grateful to all our lenders for their support, but we especially want to thank the NatWest team who were key to the successful outcome of this transaction, executing the complex documentation process within very tight timelines and providing invaluable advice throughout.” 

 

US Treasury and IRS implement tax reporting requirements for digital asset sales

As part of the Biden-Harris Administration’s implementation of the bipartisan Infrastructure Investment and Jobs Act (IIJA), the US Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) have released final regulations on the IIJA’s reporting requirements for brokers of digital assets, which align these requirements with longstanding reporting requirements for traditional financial services. 

Owners of digital assets have always owed tax on the sale or exchange of digital assets, and the IIJA did not change that or impose any new taxes on digital assets. It simply created reporting requirements, similar to those that already applied to traditional financial services, to help taxpayers file accurate returns and pay taxes owed under current law.

The final regulations will require brokers to report gross proceeds on the sale of digital assets beginning in 2026 for all sales in 2025. Brokers will be required to also report information on the tax basis for certain digital assets beginning in 2027 for sales in 2026. 

While owners of digital assets have always owed tax on the sale or exchange of digital assets, compliant taxpayers have often been forced to rely on expensive third-party services to calculate their gains or losses from the sale of digital assets. These final regulations will implement Congress’s bipartisan directive to ensure that owners of digital assets receive the information they need from brokers to file their taxes more accurately, more easily, and less expensively, and that the IRS has the information needed to address the tax evasion risks posed by digital assets. 

These regulations were developed after Treasury and IRS held a public hearing and reviewed more than 44,000 comments in response to proposed regulations. While the rules primarily address reporting requirements for custodial brokers, Treasury and IRS anticipate issuing additional rules later this year establishing reporting requirements for non-custodial brokers, consistent with statutory requirements. 

 

ICD recognised in Delivery Hero award win

ICD, an institutional investment technology provider, was a recognised partner in the corporate award won by German multinational online delivery platform Delivery Hero, which was highly commended as the Best Investing Solution in Treasury Today's 2024 Adam Smith Awards ceremony.

ICD Portal and its certified API integration with the SAP Treasury and Risk Management system created a seamless, digital process for Delivery Hero to manage cash and investments. With the technology project in place, the treasury team could execute on their investment strategy to diversify cash investments, mitigate counterparty concentration risk, and capture opportunity in high-yielding money market funds.

“From a technology perspective, our goal has been to continuously improve standardisation across the organisation for more efficient and scalable processes and to gain transparency and access to data for better business insights,” commented Christian Schmahl, Director of Treasury, Delivery Hero. “We were able to do this for cash investments with the ICD Portal-SAP integration.”

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