Citi Perspectives 2024 Corporates Edition

| 31 Insights fromClient Advisory—The Real-time Treasury Evolution: A shift tomodernization Focus on RLN/DLT & RTT/APIs: Delivering a compelling advantage! Our goal here is to better position Treasury to harness the capabilities of RLN and RTT. Combining the concepts of RLN with RTT may improve treasury operations through real-time velocity and smart programmability of money, thus delivering a compelling advantage. Treasuries are increasingly expected to deliver on optimized capital structure and financial engineering. The convergence of RLN, tokenization of bank deposit liabilities, and RTT is fast evolving and will have a significant impact on the way companies manage their finances. This puts us at an inflection point: as new technologies pick up steam, and past inertia against change turns into momentum towards treasury modernization. Treasurers need to prepare now and begin making plans on how to adopt these changes – for this is the new financial engineering. A dose of truth about payments Let’s take a moment and break payments down in simple terms. Payments do not move money. There, we said it! We can talk about all the fancy new alternative payment systems and what not, but banks are where money is created. Payments are ultimately just messaging or clearing. Assuming payments are not supported by credit, cash must be positioned in a bank and available to support a payment. Having idle cash deployed throughout your bank account structures is inefficient. Real-time and instant payments, which are launching throughout the globe, offer a way to address this problem. However, they also introduce risk and inefficiency for both banks and clients. When the bank is effectively closed and treasuries are tucked away at home in bed, instant payments will happen. And that means, they must be supported. In the case of banks, that means idle cash must be available in instant payment clearing systems. For customers, it must be in bank accounts. As we all know, where the money comes to rest in an account is settlement. Traditional automated liquidity management solutions move money at the end of the day or near the end of the day. If you have good credit, your bank will allow you to overdraw your bank account intra-day and settle before end of the banking day. Of course, not all companies have the credit to be in a position to do that, while at the same time, the ability to utilize bank funds intra-day has a real cost to banks. Setting aside bank balance sheet constraints for a moment, whether cross-branch or cross-bank, let’s discuss the idea of real-time liquidity (RTL). RTL is the ability to move money between accounts, banks, and bank branches at or near real-time without limitation. RTL is an enabling function for a bank’s treasury and balance sheet, and its customers. If we accept the premise that USD in a bank never leaves the US, and USD balances held elsewhere around the globe are a series of mirror accounting relationships, the question is – why doesn’t USD move in real-time? It’s a fair question. First, banks are subject to balance sheet constraints and the nature of the assets they hold. This is due in large part to banking regulations that intersect across global and regional regulators, impacting each individual jurisdiction that banks operate in. The lack of standardization of rules, cutoff times, and regulations across borders presents challenges that need consideration. Fortunately, this is gradually changing. The second factor is the underlying technology that banks rely on, which are in varying states of modernization. This points to the importance of DLT and tokenization. The future enabling technology for bank ledgers is likely to be tokenized liabilities. Interconnected, digital ledger-based technology offers considerable advantages, enabling programmable liquidity with constraints that are shared across banks and branches. In this way, liquidity can operate in real-time to match payments. It’s important to point out that other technologies can achieve the benefits that DLT provides.