UK banks make first interbank transactions using tokenised deposits

By Phoebe Seers and Elizabeth Howcroft

LONDON/PARIS, Sept 24 (Reuters) - Britain's biggest banks have completed the world's first transactions using tokenised deposits to move money between themselves, a boost for a blockchain-based version of commercial bank money that proponents say offers a safer alternative to stablecoins.

Banks and other financial institutions have for more than a decade been looking for ways to introduce blockchain into their own IT systems, by creating crypto tokens representing assets such as deposits, stocks, bonds and currencies. However, the development by each lender of its own blockchain-based system had prevented transactions between institutions.

Lloyds, NatWest and Barclays have now carried out two mortgage transactions using tokenised deposits, their industry association UK Finance told Reuters, while a trio of banks including HSBC this week ran a person-to-person transaction simulating an online marketplace purchase.

The trials are part of the "Great British Tokenised Deposit" project run by UK Finance, after participating banks committed to the initiative through a pilot launched last year.

Banks say moving tokenised assets could be cheaper and more efficient than using existing systems, while the Bank of England has said it would rather banks innovate with tokenised deposits instead of stablecoins - a kind of crypto token pegged to the US dollar or other currencies.   

Tokenised deposits have the same legal status as money deposited in a bank account, whereas stablecoins are typically issued by a private company and take money out of the banking system, raising concerns about the cost of credit and monetary sovereignty.

BONDS IN 2027

In the simulated online purchase, programmable deposits allowed funds to be set aside in the buyer's account and released to the seller only once the goods had been received, something which Jana Mackintosh, UK Finance's managing director for Payments and Innovation, said showed the technology could lower fraud risks. While money moved between accounts, no real goods changed hands in the test. 

Banks also completed two remortgage transactions using tokenised deposits, where locked funds were released automatically once the property transaction was completed. 

The project now plans to establish a company and develop a rulebook and governing framework to support the move from pilot into full production, and the banks involved plan to issue three digital bonds in the first quarter of 2027 that can be traded and settled with tokenised deposits, Mackintosh added.

“In the last 12 months, other jurisdictions have been speaking to us in earnest about what we’ve done, trying to understand how they can now catch up,” she said, citing conversations with counterparts in Europe.

In the United States, The Clearing House, a banking association and payments company, announced an interbank tokenised deposit project in June. 

(Reporting by Phoebe Seers in London and Elizabeth Howcroft in Paris; Editing by Tommy Reggiori Wilkes, Kirsten Donovan)