A group of financial firms led by
plans to start using a bitcoin-like token to settle cross-border trades, one of the biggest developments yet in the effort to make use of nascent blockchain technology.
The 14 firms—a group that includes big banks in the U.S., Europe and Japan—have created a new company to control development of the token, called the utility settlement coin, or USC. They have collectively invested £50 million ($63.2 million) in the company, Fnality International.
The launch of the USC project, four years in the making, may herald a new phase in the banking sector’s adoption of blockchain, the record-keeping technology that underpins bitcoin. A number of blockchain projects are moving out of the experimental phase and into production, a sign that the technology is becoming more integrated in the global financial infrastructure.
The USC token would function both as a payment device and messenger that carries all the information required to complete a trade, potentially cutting down on a transaction’s time and cost.
Processing a trade can involve multiple parties, especially if it includes a cross-border trip. Trades can take days or weeks to clear, and failed trades, in which one party ultimately doesn’t complete its end of the deal, are common.
With a blockchain-based system, all the functions performed by intermediaries are baked into the transaction itself.
“You remove settlement risk, the counterparty risk, the market risk. All of those risks add up to costs and inefficiencies in the marketplace,” said Hyder Jaffrey, head of strategic investment at UBS.
& Co. has been working on a token called JPM Coin that is similar to the USC token. The bank also launched a blockchain-based information-sharing platform called the Interbank Information Network in 2018 that counts more than 250 members.
Depository Trust & Clearing Corp. plans to later this year release a platform called AxCore for handling the trading and settlement of credit derivatives data. Ripple, the company behind the XRP cryptocurrency, is building blockchain-based networks that allows banks to bypass intermediaries. Another startup, R3, has been developing a blockchain-based technology called Corda that could be adapted for a number of banking services.
The USC token will be backed by bank-owned currency held at central banks. In addition to UBS, its backers include
State Street Bank & Trust Co.,
NV, KBC Group NV,
PLC, Mitsubishi UFG Financial Group Inc. and Sumitomo Mitsui Banking Corp.
Fnality Chief Executive Rhomaios Ram said the company is working with regulators in several countries to get the necessary approvals.
Regulatory issues have bogged down another blockchain project:
Bakkt. Still, Mr. Ram said he believes the USC token will be fully operational within 12 months.
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