Home CryptocurrencyAltcoins World’s Largest Banks Investing $63 Million On Blockchain Digital Currency

World’s Largest Banks Investing $63 Million On Blockchain Digital Currency

by Pragati Shrivastava
, World’s Largest Banks Investing $63 Million On Blockchain Digital Currency

Some of the world’s largest banking entities are investing a significant amount of money to develop blockchain digital currency for inter-banking use.

This year, leading bank JP Morgan announced the launch of its digital currency JPM coin, and Ripple closed deals with several leading banks. Amidst growing adoption of cryptocurrencies, some of the world’s largest banks are partnering with London-based Fnality International to create a blockchain digital currency for faster outward remittance. These banks from Japan, Europe, and the United States are hoping that issuing a utility settlement coin (USC) will lower transaction costs of cross-border payments by cutting out intermediaries. This coin is a more centralized cryptocurrency and expected to work in a manner similar to Ripple and reduce the time and cost involved in cross-border settlements.

Fnality International has received $63.1 million in capital from the 14 participating banks. These banks include big players like Barclays of Europe and the United States’ State Street, Japan’s MUFG Bank and Sumitomo Mitsui Banking Corp., as well as UBS and Credit Suisse. The Japanese Banks are reported to have contributed several hundred million Yen each.

Over the years banks have expressed interest in blockchain-based digital currencies for effective cross-border payments but seeing that the JPM coin website states explicitly they have no existing intention to issue its tokens to the public and it is currently just an esoteric product, an experiment at best that’s used by a small percentage of institutional clients for cross-border transactions, JPM Coin is not available to everyday consumers. What does this mean for consumers?

Well, the USC also seemingly intends to launch an internal product to the 14 partner banks. Fnality will set up accounts at participating central banks and issue these USCs as digital equivalents of major currencies. These then get converted into their paired currencies on a one-to-one basis. The USC is not intended to be a decentralized cryptocurrency such as Bitcoin but it will increase banking efficiencies.

When a client transfers funds from one country to another, Fnality issues the equivalent amount of USCs, depositing them into an account at a specified commercial bank. This bank immediately sends an equal amount of dollars into the end client’s account. Being backed by the central banks mitigates the risk of price fluctuations and provides a more stable method for inter-bank transfers as compared to traditional cryptocurrencies. However, the immediate nature of the blockchain settlement allows clients to reduce their exposure to forex risks that occur in conventional lengthy cross-border trades.

Akin to XRP and JPM Coin, the idea behind the creation of USC in this instance is to improve the efficiency of the current cross-border payments system. The current system goes through multiple steps that involve third-party intermediaries and the foreign exchange market, adding fees and other costs to the process. Blockchain-based USCs can eliminate the forex portion of the trade, allowing for orders to be processed immediately. The system will initially work with a select group of fiat currencies - USD, Euro, Pound, Yen, and Canadian Dollars. Fnality will step up the process of negotiation and issue the currency by late 2020.

Certainly, the banking industry is going to want to cash in on any savings that their internal blockchain digital currency can gain but how will that filter down to consumer savings? That is for the future to tell.

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