The last days of the third quarter are upon us, the waning days of the month, too.
And it’s shaping up to be a September to remember for tokenized deposits.
Tokenized deposits exist as digital holdings — not to be confused with stablecoins, a form of cryptocurrency — that are in fact fiat currency (not merely backed by fiat).
In a spate of recent announcements, a far-flung roster of players — monetary authorities, banking consortiums and, of course, banks — have announced pilots and other programs that are aimed at testing the real world application of those deposits that settle in central bank money.
Citigroup said in a report early this month that 65% of corporate respondents surveyed by the bank plan to use options other than central bank digital currencies (CBDC), including tokenized deposits, to support digital securities settlements by 2026.
And as PYMNTS reported over the summer, “Deposit tokens can also be integrated into banking infrastructure, allowing for smooth interoperability with traditional banking services. This integration ensures that users can see the benefits of blockchain technology without abandoning the familiar framework of their existing financial systems.”
Late last week, the Hong Kong Monetary Authority (HKMA) announced that its second phase of testing had begun for its e-HKD Pilot, where “new forms of digital money,” including tokenized deposits, as 11 groups of firms across a variety of sectors are exploring tokenized assets, programmability and offline payments. With the launch of the second phase, the efforts of the HKMA are being renamed “Project e-HKD+.” Key lessons are to be shared with the public by the end of next year, the HKMA said.
In a document detailing the pilot program’s phase 2, the HKMA said that Hang Seng Bank, Aptos Lab and Boston Consulting Group (BCG) will test the commercial value of settling a tokenized fund using digital money on a public blockchain; among the other tests, Mastercard, Kasikornbank (Kan) and Airstar Bank will explore the use of digital money “to facilitate both domestic and international trade finance.”
In another September announcement, the Institute of International Finance detailed 41 firms involved with joint public and private tests of Project Agora, in turn working with the Bank of International Settlements (BIS) to explore the tokenization of cross-border payments.
In a statement, BIS noted, “Challenges for cross-border payments include different legal, regulatory and technical requirements as well as various operating hours and time zones. Also among the challenges is the increased complexity of carrying out financial integrity controls (e.g. customer verification and anti-money laundering). These controls are often repeated several times for the same transaction, depending on the number of intermediaries involved.”
The majority of the 41 name participants from the private sector are banks; the payment networks Visa and Mastercard also are participating, as is Swift.
Also in September, UKFinance reported that the latest phase of experimentation tied to the Regulated Liability Network (RLN), testing of “foundational capabilities” included the settlement of tokenized deposits via simple push payments and interbank settlement of tokenized deposits.
“The tokenization of deposits can be implemented so as to be neutral from a legal and regulatory perspective, as compared with traditional deposits,” wrote UKFinance.