The uptake of tokenized bank liabilities and shared ledgers in transaction banking services could reduce cross-border currency costs by 12.5%, saving businesses over US$50 billion by 2030, according to a report from the International Swaps and Derivatives Association (ISDA) and Ant International.
The report is a result of the Monetary Authority of Singapore’s (MAS) Project Guardian, which explores the use of asset tokenization to enhance liquidity and efficiency in financial markets. ISDA and Ant International lead the FX workstream to develop FX data specifications, risk management frameworks, and FX documentation. Other contributors include BNY, HSBC, OCBC, and the Global Financial Markets Association’s Global Foreign Exchange Division.
The report recommends design principles for tokenized bank liabilities to standardize industry practices and support interoperability. It also highlights key risks and mitigation strategies for shared ledger-based payments and presents various use cases in transaction banking.
As part of the project, Ant International deployed 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, noted that since 2019, the company has utilized tokenized deposits to streamline wholesale payments and treasury activities, processing over a third of transactions on-chain. This approach has led to faster, cheaper, and more secure cross-border payments, translating into more competitive FX rates and quicker FX settlement for customers.
FX-related risks and costs are significant challenges in cross-market and cross-currency payments, particularly for businesses in the digital economy. Limited settlement windows, time zone delays, and varying settlement assets and platforms contribute to slower settlements and higher fees, with estimates indicating that US$120 billion is spent annually on cross-border transaction fees.
Conversely, case studies from the industry group reveal that tokenized bank liabilities and shared ledgers can facilitate faster, more secure, and efficient cross-border payments. By enabling interoperability, payments can be processed 24/7, with FX settlements occurring in real-time and settlement times reduced to minutes or seconds.
However, the report emphasizes the necessity of a universally accepted industry framework for widespread adoption. Scott O’Malia, chief executive of ISDA, states that tokenization could revolutionize cross-border payments and FX settlements, enhancing efficiencies and reducing costs and risks. The collaboration with MAS and the industry group underscores the importance of establishing common standards and documentation to ensure the safe and efficient use of tokenized bank liabilities, which will remain a focus for ISDA as the potential for tokenization continues to evolve.