HSBC and Wells Fargo, two of the world’s largest financial institutions, have started using blockchain technology to settle foreign currency trades.
The distributed ledger technology is being provided by Baton Systems with the aim of increasing settlement speed and efficiency.
Through Baton’s platform, the two banks are settling FX trades with real currencies and real accounts in less than three minutes.
It avoids passing the trades through CLS, a third-party bank widely used in the sector for settling FX trades, Baton said, adding that such rapid settlement directly between the two banks cuts exposure and settlement risks.
Bypassing the need to use CLS, a third-party bank used widely in the settlement of FX trades, both banks are able to cut exposure and settlement risks by using blockchain technology.
The banks believe blockchain will play an increasingly important role in the future of digital trading.
In an interview with CityAM.com, Mark Williamson, head of FX partnerships and propositions at HSBC, said: “We think distributed ledger technology is a good way to achieve better transparency for our audit trail of FX transactions as they go inter-company and now as they go to Wells. It’s a really efficient way for cross-border settlement.”
He continued: “As we start to move towards Web 3.0, which is the movement of store of value and payments onto distributed ledger technology and blockchain solutions, then having that underlying backbone and rail is going to be even more important.”
HSBC’s plans with blockchain tech don’t look set to stop at forex trading, however. The bank is experimenting with tokenisation of assets such as bonds and gold. It’s also currently helping governments to develop central bank-backed digital currencies (CBDCs).
HSBC is one of the world’s largest commercial banks with more than £2 trillion in assets. Wells Fargo, following closely behind, holds close to £1.5 trillion in assets.
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