Citi, Fidelity International, Reveal Digital FX Swap PoC

Citi and Fidelity International say they have completed a proof of concept of an on-chain money market fund with a digital FX swap solution, as part of Project Guardian, a tokenisation project headed by the Monetary Authority of Singapore.

The firms observe the solution could enable investors to conduct seamless and real-time settlement of multi-asset positions in different currencies, with 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,” they state. “For example, a corporate treasurer holding non-USD working capital could invest in US dollar denominated MMFs to enhance portfolio diversification and yield potential while ensuring continuous operational liquidity.”

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.

The firms say that tokenised MMFs are expected to be the fastest-growing digital asset class, reaching $400 billion by 2030, and that USD MMFs have a large number of issuers with over $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.

“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,” says Same Hewson, 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.”

Emma Pecenicic, head of digital propositions and partnerships, APAC ex-Japan, distribution at Fidelity International, adds, “Our aim is to develop practical approaches that promote capital efficiency, democratize access to financial services, and bring value to our clients. As a global asset manager, we are excited to engage with partners like Citi to explore technological innovations like this on-chain money market fund with digital foreign exchange (FX) swap solution to better understand the efficiencies it can bring, as well as help establish best practices and standards for tokenised funds for the benefit of investors.”

Meanwhile, Deepak Mehra, global head of digital assets and international lead for strategic investments for Markets at Citi, observes, “While the current solution tested settlement of tokenized MMFs denominated in foreign currencies, the underlying technology could potentially be expanded in the future to unlock further efficiencies and enable compatibility with other tokenised assets.”