HSBC Modernizes London Gold Market with Blockchain Technology

HSBC Modernizes London Gold Market with Blockchain Technology

UTC by Benjamin Godfrey · 3 min read
HSBC Modernizes London Gold Market with Blockchain Technology
Photo: Shutterstock

HSBC’s foray into blockchain technology differentiates it from previous attempts by other financial institutions to streamline gold investing.

HSBC Holdings Plc (LSE: HSBA), one of the world’s premier bullion banks, has introduced a platform that utilizes blockchain technology to tokenize ownership of physical gold stored in its London vault. This innovative move marks a significant step forward for the gold market.

The London Gold Market’s Outdated Practices

The London gold market, one of the largest and most influential in the world, has long been characterized by traditional and manual practices. With approximately 698,000 gold bars stored in vaults across the Greater London area, valued at around $525 billion, it’s evident that the market is of substantial importance to global financial stability.

However, the reliance on paper-based record-keeping and over-the-counter trading methods has limited the market’s efficiency and transparency. HSBC’s solution to these challenges is a blockchain-based platform that tokenizes ownership of physical gold. This digital transformation allows clients to trade digital tokens that represent real gold bars, providing a level of transparency and efficiency that was previously unattainable in the gold market.

Mark Williamson, Global Head of FX and Commodities Partnerships and Propositions at HSBC explains that this technology makes the process “quicker and less cumbersome” and enables clients to trace the gold they own right down to the serial number of each gold bar.

Each token on HSBC’s system is equivalent to 0.001 troy ounces, in contrast to the standard 400 troy ounces for a London gold bar. This system facilitates more flexible and accessible trading for both institutional and retail investors. While the initial focus will be on institutional investors, HSBC has expressed intentions to explore opportunities for retail investors, provided local regulations permit such access.

The bank envisions expanding its blockchain-based system to include other precious metals. This would further enhance the accessibility and transparency of the precious metals market, making it more attractive to a broader range of investors. HSBC’s expertise and influence in the market make it a formidable player in this transformation.

HSBC’s Unique Position on Gold Tokenization

HSBC’s foray into blockchain technology differentiates it from previous attempts by other financial institutions to streamline gold investing. While crypto startup Paxos collaborated with Euroclear in 2016 to create a blockchain-based settlement service for London’s gold market, that partnership dissolved the following year.

However, Paxos currently offers a digital token called Pax Gold, backed by physical gold, with a market value of $479 million. HSBC’s advantage lies in its global presence as one of the world’s largest custodians of precious metals and one of the four clearers on the London gold market, where daily transactions exceed $30 billion.

HSBC’s blockchain-based gold system is part of a broader strategy to leverage blockchain technology in various aspects of its operations. The bank has already introduced platforms like HSBC Orion, which facilitates the issuance and storage of digital assets, including digital bonds. This comes on top of the launch of its Metaverse Discretionary Strategy investment portfolio for Asian private banking clients.

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