HSBC and Wells Fargo have expanded their currency settlement system using DLT to include bilateral Chinese Yuan (CNH) transactions. The two banks started using the solution late last year and have now transacted more than $200 billion between them. So far, transactions have been in USD, EUR, GBP, and CAD.

However, HSBC has used the same solution to settle several trillions in transactions between HSBC subsidiaries.

By using DLT, companies have shared FX transaction records and complete visibility into transactions, reducing the need for reconciliations. The solution enables PvP net settlement in commercial bank money compared to CLS, which operates in central bank money. It is also less restrictive in terms of settlement time. The ultimate benefit is a reduction in risk.

The Baton System’s central ledger feeds the system and, as its legal framework, uses the Baton Rulebook. Baton’s technology uses a distributed ledger that is not a blockchain and is focused on workflows. It is not a token based system.

The Committee on Payments and Market Infrastructures (CPMI) recently released a report investigating the risk exposure of the foreign exchange market, which saw $6.6 trillion in average daily transactions in 2019. On any given day , there is the possibility of losses of USD 2.8 trillion.

The CPMI is particularly interested in this type of PvP solution because it can reduce the risk of liquidation.

“Extending the CNH PvP liquidation to Wells Fargo is an important milestone in reducing Herstatt’s risk outside of G10 currencies,” said Mark Williamson, global head of FX Partnerships & Propositions at HSBC. “This development is just our first step in expanding our coverage to emerging market currencies.”

Several solutions now plan to target interbank payments using blockchain or DLT, but Baton’s Core has a head start. The Regulated Liability Network is part of a New York Federal Reserve Proof of Concept that includes these two banks. Fnality, backed by 17 major financial institutions, has been recognized in the UK as a systemically important payment infrastructure and plans to launch next year. And JP Morgan, DBS Bank and Standard Chartered have backed the Singapore-based Partior. Furthermore, SWIFT is also working in this area.

More to follow.