Some of the world’s largest banks are set to launch crypto versions of global currencies by 2020, according to the Financial Times.
A total of 13 banks including Barclays, UBS and Santander are preparing to launch the so-called utility settlement coin (USC)- something that has been in the pipeline since 2015, It is hoped that the move will determine whether blockchain has the ability to optimise processes in wholesale banking.
The banks in question, as well as Nasdaq also invested $63 million in a new venture known as “Fnality” which will run the USC project. Those involved hope to reduce the need for third party intermediaries as well as making the cross-border payment process more smooth and cost effective.
At the moment, cross border payment processes are slow, inefficient and complicated. Even the most straightforward transaction involves multiple steps including the foreign exchange market and fees from third parties. Whilst companies like JPMorgan are trying to integrate blockchain and cryptocurrency into the banking sector, USC is expected to bring more drastic changes to the sector.
The process will commence with Fnality creating accounts for central banks and issuing them USCs in return for fiat currency. These USCs will be considered as legal tender and an equivalent to currencies such as the Dollar and Pound. They will also be interchangeable with the real currency, on a one-for-one basis.
Then when a user wishes to enact a transaction between say the UK and the USA, the UK bank will transfer the amount in GBP to the central bank of the country. Fnality will then issue the equivalent amount in USC and deposit them into the US bank. The bank will then send on the equivalent amount of Dollars to the clients personal account.
Whilst it might sound complex, all of these steps can occur in a split second and will also help mitigate the risk of price variations, therefore enabling stable interbank transfers.
These USCs are also not at risk of price fluctuations which will make cross-border transactions quicker and more efficient. Records of every transaction will be kept on the blockchain in an immutable and transparent manner, reducing the risk of any data fraud or otherwise.
The first USC is anticipated to hit the market by late 2020 and it is expected to apply for Dollars, Pounds, Euros, and Yen.
There are some concerns however, around the legal and regulatory challenges associated with this new concept. Those involved will need to prove that scalability issues have been resolved as well.
Of course, the support of 13 of the world’s largest banks is a very positive sign that the once dubious banking sector is beginning to warm towards cryptocurrency. The development of this ecosystem could go a long way to help to convince many naysayers that there is a future in this kind of technology.