Citi has announced what it describes as a "historic milestone" in its work to replace conventional trade finance instruments such as letters of credit (L/Cs) with Citi Token Services for Trade (CTST), a digital solution based on smart contracts backed by tokenised cash.

Tokenised cash is the digital representation of traditional, fiat currency on a blockchain or distributed ledger and so can be used for secure and efficient transactions, leveraging the technology of blockchain for transparency and traceability.

DLT and smart contracts

By using distributed ledger technology (DLT) and smart contracts in its CTST, Citi has created a patented programmable payment and liquidity platform, which aims to reduce costs and streamline processes.

It also progresses Citi's pursuit of real-time, always-on services for its institutional clients to streamline trade finance processes, enhance transaction speed, and reduce manual labour whilst improving efficiency, compliance, and risk management

First real-world use

Citi has reached what it describes as a historic milestone with CTST facilitating pilot transactions in partnership with shipping agents, CB Fenton and GAC Panama Shipping.

For the first time, the shipping agents have utilised the solution for transit operations to streamline payments. These 'pilot transits' are the first real-world use of Citi's digital trade solution in global shipping.

Replacing L/Cs

By replacing transactions such as guarantees and L/Cs with smart contracts backed by tokenised cash, CTST aims bring trade finance into an increasingly real-time world.

The completely digital process aims to enable 24/7 settlements, when predetermined criteria are met, between Citi clients and their counterparties to automatically execute and provide provisional payments. This technology will significantly reduce transaction processing times from days to minutes.

Citi says these pilot transits demonstrate the potential for global trade when manual, and time-consuming processes are replaced by cutting-edge digital solutions and present a significant opportunity to extend CTST more widely in the future.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.