What Treasury Teams Can Learn From Central Banks’ Tokenization Projects

For decades, wholesale cross-border payments have meant snail-paced bank wires, money squirreled away across sprawling correspondent banking networks, and the accumulation of enough fees that Scrooge McDuck could swim in them.

This has long made cross-border payments a headache for corporate treasurers and finance teams, especially those overseeing multinational operations. The correspondent banking backbone of cross-border payments relies on a sequence of bank balance sheet updates, each requiring manual compliance checks for things like anti-money laundering (AML) and know-your-customer (KYC) regulations.

The result is a process plagued by duplication, delays and costs. It’s also one that the world’s central banks and financial institutions are working to solve, in many instances by experimenting with blockchain and tokenization.

During the most recent Eurogroup meeting in January, the European Central Bank (ECB) provided an update on its exploratory work on tokenization and blockchain’s role in streamlining the wholesale settlement of transactions, reporting to the ministers present that the technology is capable of solving inefficiencies, reducing risks, and unlocking new opportunities within wholesale trade.

This maturation of the cross-border landscape could ultimately redefine how growth-focused treasurers and CFOs manage global transactions, liquidity, and risk.

Read more: Why Cross-Border Payments Innovation Starts and Ends With Ledger Technologies

Tokenization in Cross-Border Payments

With innovations like real-time payments, blockchain tech, and embedded finance crashing onto the scene, treasury teams have never had more tools — or responsibilities — at their fingertips.

Tokenization, in its simplest terms, involves embedding programmable rules into digital representations of assets. By integrating traditional database records with programmable logic, tokenization enables automated, secure and traceable transactions.

For CFOs and treasurers, this is more than a technical upgrade: it is an opportunity to rethink how money and assets move within and across borders by innovating across a process traditionally plagued by duplication, delays and costs.

One of the most compelling use cases for tokenization is the development of unified ledgers, which integrate wholesale central bank money with other claims on the same platform. This innovation could radically simplify how capital markets operate, allowing for interoperability and reducing the fragmentation that often hampers liquidity.

The basic principle behind cross-border payments — namely that the payee information is accurate — is a pain point, Nium Chief Payments Officer Alex Johnson explained to PYMNTS in an earlier conversation.

For treasurers managing complex funding structures, a unified ledger offers new possibilities for optimizing cash flow and reducing the cost of capital. By embedding compliance and settlement rules directly into digital tokens, organizations can achieve “atomic settlement” — a simultaneous and instantaneous transfer of funds and assets.

The potential of tokenization is underscored by initiatives like the Bank for International Settlements (BIS) Agora project, which has brought central banks and private financial institutions to explore tokenization’s applications in wholesale payments. With over 40 participating organizations, the Agora project highlights the growing consensus that public-private partnerships are essential for scaling these innovations.

See also: Stablecoins Move From Cross-Border B2B to Real-Time Treasury Use Cases

Implications for CFOs

As PYMNTS’ Karen Webster noted in an earlier interview, the focus on cross-border innovation needs to be on solving key frictions: moving money securely and safely, providing transparency throughout the process and optimizing the economics of cross-border transactions.

Stablecoins, a subset of tokenized assets, are also gaining traction as efficient tools for settlement. Dominated by dollar-pegged tokens, stablecoins provide a bridge between traditional fiat currencies and the digital realm. For treasurers, stablecoins offer the speed of digital transactions with the stability of fiat currency, making them an attractive option for cross-border settlements and cash management.

The biggest implications for finance and treasury teams of tokenization on wholesale cross-border payments are likely to be around enhanced cash flow, improved risk management, greater cost efficiency, and  future-proofing departmental functions.

Tokenization enables real-time visibility into cash positions across geographies, allowing treasurers to manage liquidity dynamically; while automated compliance and traceable transactions help to reduce operational and regulatory risks. At the same time, by eliminating intermediaries and automating processes, tokenization can deliver savings on transaction fees and administrative costs; while as the technology evolves, early adopters will be better positioned to adapt to emerging financial technologies, gaining a competitive edge in efficiency and innovation.

Still, while the potential benefits are clear, adoption is not without challenges. Integrating tokenized systems into existing treasury operations requires significant investment in technology and training. Regulatory uncertainty, especially around stablecoins and cross-border tokenized payments, remains a key hurdle.

Additionally, the transition from traditional to tokenized systems involves managing cultural shifts within organizations. Treasury teams must not only embrace new technologies but also develop the skills to leverage them effectively.