As part of Singapore’s Project Guardian which explores tokenization, Citi and Fidelity International have developed a solution that combines a tokenized money market fund (MMF) with an embedded digital FX swap.
Conventionally, if an institution outside of the United States wants to buy a US dollar MMF, that involves currency risks. They have to convert their local currency into the US dollar to buy the MMF, and when they’re ready to sell the MMF in the future, the exchange rate might have moved against them. So often when investing in a USD MMF, an institution would also execute an FX swap which switches to US dollars today, and converts back to local currency at a specific rate, say one month in the future when they plan to exit the MMF position. In conventional markets, these would be entirely separate transactions.
One target market for the tokenized version would be corporate treasurers that want to invest in USD MMFs to earn yield. But they also want to ensure they can exit the position at any time to use the funds for working capital. With this sort of solution, tokenization would make that possible in real time, which is not something available today.
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