Payments made at the weekend are no longer a revolutionary development. The transformation is now taking place elsewhere: banks are seeking to move their tokenised deposits between infrastructures that were previously separate. Luxembourg is already connected to HSBC’s infrastructure. The Tokenised Deposit Service, or TDS, enables eligible businesses to move funds instantly between their accounts held with HSBC in several countries. The service operates 24 hours a day, seven days a week, including outside the normal cut-off times for bank payments.

“HSBC’s tokenised deposits service is now operational in Luxembourg and enables cash to be transferred instantly, 24 hours a day, seven days a week, within the HSBC network, including for cross-border transactions,” the bank said in a response to Paperjam. The service is designed to operate at weekends as well as on weekdays.

Luxembourg is one of the six markets currently connected, alongside Hong Kong, Singapore, the United Kingdom, the United States and the United Arab Emirates. The network supports several currencies, including the euro, the US dollar, the pound sterling, the offshore renminbi, the Hong Kong dollar, the Singapore dollar and the United Arab Emirates dirham. The currencies actually available vary depending on the trading corridors and clients’ needs.

In practical terms, the bank converts a traditional deposit into digital tokens recorded on its private blockchain. Each token remains backed by a unit of currency held with HSBC. It is therefore neither a cryptocurrency nor a stablecoin issued by an external party, but rather the digital representation of a regulated bank deposit. An international company can thus move its cash between different entities within its group without having to wait for banking systems to open in turn. A subsidiary based in Asia can, for example, transfer funds to a Luxembourg-based entity at the weekend or outside European banking hours.

HSBC does not disclose the number of customers using its service in Luxembourg or the volumes transferred since its launch, as this commercial data remains confidential. The bank does, however, report that there is interest in ongoing cash management in Luxembourg, as in other countries where the service is available.

Two more steps forward this summer

This 24/7 availability is not, in itself, unprecedented. Instant transfers in euros, transfers between accounts within the same bank and several private services already allow money to be moved at weekends. Citi states, in particular, that its 24/7 dollar clearing service serves more than 300 banks.

The innovation being sought relates to the nature of the money being transferred and to the interoperability of the systems. Tokenised deposits can be programmed and integrated with other transactions carried out on distributed ledgers. However, the infrastructure developed by banks still largely operates as separate networks.

At present, HSBC’s commercial offering mainly covers transfers between eligible accounts held with the group. To send tokenised deposits to another bank, HSBC is working with Swift and several institutions to establish connections between their respective infrastructures.

On 19 August, HSBC and Standard Chartered carried out the first cross-border interbank transaction on Swift’s new blockchain ledger. The payment obligations were recorded simultaneously on HSBC’s tokenised deposit service and on Standard Chartered’s infrastructure. Swift’s ledger enabled them to be reconciled and settled prior to final settlement in the existing banking systems.

DBS and Citi continued these trials on Saturday 5 September. Within a few minutes, the two banks executed a US dollar payment between Singapore and Citi’s New York office, using tokenised deposits and the Swift ledger. This transaction is neither the first bank payment to be carried out at the weekend nor the first interbank transaction to be conducted via the Swift ledger. DBS describes it more specifically as the first dollar payment between Singapore and the United States to be carried out at the weekend using this infrastructure.

17 banks across six continents

HSBC’s Luxembourg hub was not involved in either this transaction or the first transaction carried out with Standard Chartered. It is, however, connected to the group’s central distributed ledger infrastructure. “We can therefore use any of the markets where we offer tokenised deposits, including Luxembourg, to facilitate transactions on the Swift blockchain ledger,” explains HSBC in its response.

Launched in July, this system is to be tested by 17 banks across six continents, including BNP Paribas, Citi, DBS, HSBC, Standard Chartered and UBS. Swift acts as a coordination layer between the institutions’ ledgers. It does not create a common currency nor does it hold the funds.

The ledger enables banks to record and reconcile their liabilities immediately, including overnight and at weekends. However, the final settlement continues to take place via existing banking infrastructure. The project therefore aims to combine the availability of blockchain technologies with the banking system’s rules on compliance, control and risk management.

Tokenised deposits could also be used to settle financial assets that are themselves recorded on a blockchain. Their programming would enable the transfer of a security and its payment to be executed simultaneously, in accordance with the principle of atomic delivery versus payment.

“The nature of the service allows a secure commercial deposit to form the monetary component of a simultaneous settlement against a tokenised security,” says HSBC. The bank is involved in several projects dedicated to this development, notably Agora, Ensemble, mBridge, as well as the European initiatives Appia and Pontes. It believes that tokenised deposits could support the programmable settlement of digital assets, subject to the infrastructure and rules applicable to each market.

Luxembourg cannot therefore yet be described as a documented transit point for interbank transactions carried out on the Swift network. It does, however, have an initial operational building block: eligible HSBC clients can already transfer their tokenised deposits 24 hours a day within the bank’s international network. Connecting to the infrastructure of other institutions should enable this tool to move beyond its original banking environment.