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HSBC and Wells Fargo agree on blockchain for currency trades

In the latest evidence of how the technology that supports crypto assets is extending to more mainstream activities, HSBC and Wells Fargo have begun using a blockchain platform to settle bilateral foreign currency (FX) exchanges.

The startup behind the Core-FX distributed ledger technology, or DLT, announced on Monday that the two banks are utilising the platform to settle FX trades in less than three minutes using real currencies and real accounts. It eliminates sending deals through CLS, a third-party bank extensively utilised in the industry for resolving FX trades. CLS is a nearly two-decade-old tool that central banks encourage market players to employ in order to mitigate the risk of certain transaction failures. According to Baton, who also added that direct settlement between the two banks reduces exposure to settlement risks.

The new blockchain-based digital trading and settlement arm of SIX Swiss Exchange issued its first bond last month. The move is the latest example of blockchain technology infiltrating the $6.6 trillion-per-day foreign exchange market, resetting relationships between large investment banks and central banks. As part of a series of studies centred on central bank digital currencies, the central banks of Switzerland and France successfully tested the first cross-border payment on the blockchain earlier this month.

It would be the first time, according to Mark Jones, co-head of macro at Wells Fargo, that blockchain technology was utilised to settle live cross-border payments. “We believe this is the start of many steps in our industry’s adoption of disruptive technologies in the years ahead,” he added. He recognised that the plan would eliminate CLS, a US Federal Reserve-regulated institution that settles trillions of dollars in global currency transactions and ensures that both parties are paid at the same time. The two banks also expressed interest in expanding the system to include other institutions and developing market currencies not settled by CLS.

HSBC’s global head of FX partnerships, Mark Williamson, said the banks were also in discussions with financial market infrastructure operators regarding their involvement. He remained mum on the parties involved, but indicated a decision will most likely be made next year and requested that the industry’s followers stay posted on the developments then.

Following the launch of its FX Everywhere platform in early 2019, HSBC announced plans to employ blockchain technology more widely to ensure that currency trades are appropriately registered and resolved. Both HSBC and Wells will have real-time transparency of the settlement status of foreign exchange trades in the four first currencies thanks to the technology.