UBS has been working on the Utility Settlement Coin (USC) since a year ago and is now being joined by Santander, Deutsche Bank, BNY Mellon and the broker Icap on the project.
Advertisement
Several of the world’s biggest banks are working together to create a digital currency which can be used to speed up settlements with the ambitious goal of putting the blockchain-based system into practice by 2018.
Julio Faura, head of R&D at Santander, comments: “Recent discussion of digital currencies by central banks and regulators has confirmed their potential significance”.
The kudos couldn’t be any bigger: three of the world’s largest banks have agreed to join the project for a digital currency, which UBS has been developing at its fintech laboratory Level 39 past year.
All four banks are members of the 50-strong R3 consortium of financial institutions exploring ways of blockchain usage in the financial system.
The total cost to the finance industry of clearing and settling trades is estimated at $65bn-$80bn a year, according to a report last year by Oliver Wyman.
The currency would be linked with global currencies and central bank reserves rather than being a publicly issued digital currency such as bitcoin. JPMorgan is also working on a similar project. The cryptocurrency will use blockchain technology underpinning the Bitcoin.
The USC would be based on cash assets, with versions available in major currencies, including the US dollar, euro, sterling and Swiss franc, and would be convertible at parity with a bank deposit.
Financial regulators are still trying to assess the implications of blockchain – also called “distributed ledger technology” – and whether it could meet technical, governance, legal and regulatory requirements. “What that allows us to do is to take away the time these processes take, such as waiting for payment to arrive”. The virtual coin acts as a proxy for physical currency assets held in deposit at the central bank.
Hyder Jaffrey, head of fintech innovation at UBS, told the FT: “You need a form of digital cash on the distributed ledger in order to get maximum benefit from these technologies”. But concerns include the security and the impact on banking stability.
Advertisement
“Today’s settlement and clearing is a process involving many institutions”, Paul Maley, managing director at Deutsche Bank’s Institutional Client Group, said in the statement.
