Despite showing major hostility for several years, global banking institutions are warming up to the idea of digital currencies. Earlier this year in February 2019, Wall Street giant JP Morgan became the first banking giant to join the crypto bandwagon by announcing JPM Coin.
Now, a number of financial firms are falling to the idea of having a digital currency for quick international settlements. Fourteen banking institutions from across the U.S., Asia, and Europe have partnered with London-based Fnality International for the development of blockchain-based digital currency dubbed as Utility Settlement Coin (USC).
Leveraging the blockchain technology will help these companies to achieve instant high-value international settlements at low costs. For this USC project, Fnality has supposedly received over $63.1 million in capital investments by these banks. Some of the participating banks include State Street of the U.S., Barclays from Europe, Credit Suisse, UBS, Japan’s Sumitomo Mitsui Banking Corp and MUFG Bank.
In fact, the WSJ report notes that the UBS token will function as a payment device as well as a “messenger that carries all the information required to complete a trade”. Besides, it will function under a fully permissioned blockchain system.
Speaking to WSJ, UBS investment strategy head Hyder Jaffrey, said: “You remove settlement risk, the counterparty risk, the market risk. All of those risks add up to costs and inefficiencies in the marketplace.”
Although banking institutions are joining the crypto bandwagon, their concept of using digital tokens differ largely from the other decentralized crypto tokens like Bitcoin, Ether, etc. The decentralized tokens are driven by the demand-supply economy and function over a distributed ‘public’ ledger.
On the other hand, these banking institutions plan to use their crypto tokens internally among themselves. The idea is just to leverage the potential benefits of blockchain like instant settlements, lower costs, reduced risks, higher transparency, etc.
Like for e.g. JP Morgan has already cleared that its JPM Coin will be available only to its institutional clients for instant global settlements. However, if all works out fine, the bank could possibly release the digital token for retail use in the future. Head of JPMorgan, Jamie Dimon, said:
“JPMorgan Coin could be internal, could be commercial; it could one day be consumer”.
Similarly, Fnality will create individual accounts of all the participating central banks. Then, it will issue the USC against the digital equivalent of these major currencies. Once the transfer of USC tokens is done, they will get converted into the paired currencies before getting deposited.
Thus, the USC token will be a facilitator and intermediary for instant money transfers. Besides, being backed by central bank currencies reduces the risk of price fluctuations while offering a stable method for interbank transfers.