Digital currencies: The next frontier in treasury?

Digital currencies are no longer a distant concept for corporate treasurers. They are becoming an increasingly relevant topic as stablecoins and central bank digital currencies (CBDCs) move from pilot projects to mainstream conversation. But what problems are they actually trying to solve, and what does this mean for treasury in practice?

Reducing friction in a world of digital islands

At their core, digital currencies aim to reduce friction and eliminate intermediaries in financial transactions. As Ville Sointu, Chief Strategist in Transaction Banking at Nordea, puts it: "Traditionally we have been living on digital islands." Blockchain and distributed ledger technology (DLT) emerged as a way to connect those islands, enabling atomic settlement, 24/7 availability, and programmable payments within a shared network or platform.

Not all digital currencies are equal

Understanding the differences between digital currency types is essential for any treasury professional:

• Central bank digital currencies (CBDCs) are claims against a central bank. The upcoming digital euro, for example, aims to put central bank money directly in the hands of Eurozone citizens. Notably, companies will not be permitted to hold it directly.
   
• Tokenised deposits are claims against a commercial bank deposit and can only exist within closed, compliant networks between regulated institutions.
   
• Stablecoins are claims against a private company and can operate on public blockchains, although compliance controls remain underdeveloped.

The key question to ask, according to Sointu, is always: "A claim against whom?" – and what level of trust you place in that issuing entity.

Cross-border payments: When do stablecoins make sense?

For cross-border payments, stablecoins can outperform legacy correspondent banking, but only when acceptance is there on the receiving end. Today, most stablecoin transactions follow a "stablecoin sandwich" model: procure, send, convert back to fiat currency. This doesn't scale. The exception is in markets with volatile local currencies, such as parts of South America, where US dollar stablecoins are actively held and used, creating genuine secondary markets and real payment utility.

It is also worth noting that over 99.5% of the stablecoin market is currently denominated in US dollars, making the euro stablecoin an uphill battle for now. Nordea has nonetheless invested in Qivalis, a joint venture aiming to launch a regulated euro-denominated stablecoin under the EU's MiCA regulation.

What this means for corporate treasury

For multinationals with already centralised liquidity management and automated payment processes, the honest answer is: the immediate upside is limited. The real benefits will come when tokenised deposit networks become interoperable, widely available, and capable of supporting conditional, programmable payments, including across time zones and on weekends.

Programmability, the ability to embed pre- and post-conditions directly into payment transactions, is a genuine opportunity for treasury. But as Sointu notes, this is not technology-dependent: "We can do programmable conditional payments today on a conventional database system." The harder question is agreeing on the rules, validation, and legal framework, challenges that remain largely unanswered even within DLT environments.

Digital currencies are maturing. The foundations are being laid. For treasurers, the question is no longer whether digital currencies are relevant, but how quickly the use cases will reach them.

Watch the on-demand Treasury Trends webinar with Ville Sointu and Richard Hayes.