Asia-Pacific is poised to see a significant rise in the use of digital money amid the rapid commercialization of distributed ledger technology (DLT) and digital assets in the region, a new report finds.

According to the latest white paper in Citi's Securities Services Evolution series, 48% of the respondents in APAC and 46% in Europe are actively pursuing DLT and digital asset initiatives. Within APAC, 12% of respondents have already achieved commercial-scale implementation while another 36% are investing in pilot projects and minimum viable product (MVP) deployments to explore further growth opportunities.

The report by Citi Securities Services, in collaboration with ValueExchange, was based on an online survey of 494 individuals around the globe, including FMIs, custodians, banks, broker-dealers, investment managers, and institutional investors. The survey was conducted in June.

In Asia, the push for accelerated settlements is shaping the industry’s agenda. According to the Citi survey, 28% of respondents identified the transition to T+1 (one-day settlement cycle) as the most impactful post-trade priority, up from 21% last year. This is followed by settlement efficiency, cited by 14% of respondents, and the adoption of digital assets, which 13% now see as a key priority.

This is significant for the development of digital assets because trading in tokenized securities requires T+1 settlement.

There are some challenges around the transition to T+1, with 44% of respondents believing there is a significant impact from the new settlement cycle going live. However, only 28% of APAC respondents claim to be significantly impacted by T+1 in 2024, compared with 60% in Europe.

This is because dealing with T+1 settlement is more challenging for people in certain time zones. For example, it's harder for those who are six to seven hours behind the market than for those who are 12-16 hours behind. Asian investors, who often use US dollars, are somewhat protected from currency issues. However, they face the difficulty of handling settlement and funding tasks in the middle of the night, instead of during regular business hours.

In Asia, investors have the advantage of knowing their funding needs early in the morning, giving them the whole day to sort things out. But in Europe, investors only have a few hours to secure the necessary funds after getting the initial trade instructions, the report explains.

A significant amount of money from Asia is invested in North American markets. At the same time, most financial markets in APAC are very strict about ensuring that transactions are completed without any mistakes or delays (“no-fails basis”). Because of this, APAC is gearing up to shift to the T+1 regime more than any other region. However, because of the high stakes and strict standards, there is very little margin for error in making the transition.

Asia-Pacific also leads in the digital asset space, with 41% of the total issuance of digital securities coming from the region in the last five years. A notable example is the Hong Kong Monetary Authority’s issuance of a digitally native green bond worth HK$6 billion (US$767 million) for the Special Administrative Region government in February 2024. Moreover, 13% of APAC respondents consider digital assets as their most impactful priority, up from 10% in 2023.

While sovereign bond issuances have been successful in driving capital markets around DLT, most of the digital bonds issued today remain in millions of digital wallets, held by asset managers and individual investors across the world. Without a robust and liquid marketplace for digital assets, an investor’s holdings cannot be easily exchanged for digital cash or other digital securities. They remain isolated and are therefore more expensive to hold.

According to the survey, 29% of APAC respondents consider crypto assets such as cryptocurrencies and non-fungible tokens (NFTs) as the fastest-growing forms of digital assets, followed by equities (21%) and fixed income (19%).

The shift towards real-time payments is another significant trend highlighted in the Citi report. More than half of respondents (57%) recognize the substantial impact of real-time processing on their businesses, with 89% of institutional investors considering it highly impactful. In APAC, 64% of respondents believe they can begin processing real-time payments within the next six months, compared with 60% in North America and 33% in Europe.