Mark Williamson, HSBC’s global head of forex partnerships and propositions based in London, continually evaluates the effects of digital assets and currencies on cash, capital and collateral. In an interview with Delano, Williamson provides firsthand insights into HSBC gold tokens--a digital asset based on distributed ledger technology, specifically available on HSBC’s Orion platform--and backed by physical gold held in HSBC’s gold reserves.

Kangkan Halder: Could you please provide an overview of the HSBC Orion platform and the concept of gold tokenisation?

Mark Williamson: is the brand we use for our digital assets platform. HSBC Orion has two tokenisation engines--one for the issuance, settlement and servicing of dematerialised securities such as digitally native bonds, and one for tokenising physical assets such as loco London gold held in HSBC’s London vault.

In November 2023, we went live with tokenising physical loco London gold for institutional clients and, in March this year, we launched HSBC Gold Token for retail clients based in Hong Kong. Tokenising physical loco London gold for our institutional clients, as well as for our retail clients in Hong Kong, is powered by the same tokenisation engine.

For issuing digital bonds, we launched HSBC Orion in January 2023, under Luxembourg law, with the European Investment Bank’s sterling digitally native bond issuance.

We have since made HSBC Orion available in Hong Kong for digitally native bond issuance. In Hong Kong, HSBC Orion is part of the Central Moneymarkets Unit’s infrastructure and was used by the HKMA [Hong Kong Monetary Authority] for issuing Hong Kong’s first digitally native bond issuance in February this year.

Tokenisation can reduce the need for post-trade reconciliations. It automates clearing and settlement, and provides efficiency, liquidity, transparency and accessibility through fractionalisation that can democratise ownership of underlying assets, such as gold.

What advantages does gold tokenisation offer compared to traditional gold exchange-traded funds?

We see these as complementary products, similar to how mutual funds and ETFs have co-existed for over 20 years. Tokenisation offers a new way for investors to gain exposure to assets such as gold. With an ETF, individuals have opted to buy and sell ETF shares through their brokerage account. 

Tokenisation also provides financial institutions with a direct way of having greater visibility on their ownership of the underlying allocated gold, right down to serial number and provenance of the gold bars held in HSBC’s London vault. By using distributed ledger technology and smart workflows on the HSBC Orion platform, this removes operational friction during the creation and redemption of the gold tokens, all the way through to settlement (when ownership of the tokens changes hands).

Through fractionalisation of gold, down to 0.001 of a troy ounce [equivalent to 31.1 milligrams], we are able to democratise ownership of gold--for example, for retail investors in Hong Kong via their online bank account or mobile banking--by making gold investment more accessible.

Is HSBC planning a gradual transition away from gold bonds and ETFs in favour of gold tokens?

No.

Do HSBC’s gold tokens exclusively represent physical gold held by HSBC, or do they also include gold from partner institutions?

Only gold physically held in HSBC’s loco London gold vault.

Are HSBC’s gold tokens currently accessible to retail investors in the EU, and what are the legal barriers to offering them to retail clients?

Only in Hong Kong, where there is regulatory approval for retail investors.

Tokenised physical gold is live for global institutional clients who trade with HSBC London plc.

HSBC continues to work with regulators globally to roll out tokenised physical gold for both institutional and retail investors who buy, hold and sell loco London gold--the most assured and liquid gold market globally.

Can you provide an estimate of the total value of HSBC’s gold tokens available for trading at present?

HSBC has the largest commercial vault in EMEA and is one of four precious metals clearers and custodians for the gold market. Using DLT technology as an overlay to our Core Inventory Management system, we are able to quickly create and redeem tokens from available gold bars in our London vault. That means potentially all physical gold can be tokenised in HSBC’s loco London vault. 

Apart from gold, what other real assets does HSBC view as viable options for tokenisation?

Other precious metals potentially, such as silver.

Considering the potential adjustments in key banking rates by central banks globally, how do you perceive gold, and by extension, gold tokens, as investment opportunities?

Gold is considered a safe-haven investment, particularly during times of geopolitical and interest rate uncertainty. The price of gold, as with any commodity, can fluctuate depending on the extent that investors are risk-on or risk-off.