UBS, Deutsche Bank, Santander and BNY Mellon have joined forces to develop a form of digital cash with the hope it will become an industry standard for settling financial trades over blockchain.
The Financial Times has reported the four banks, as well as electronic broker ICAP, have plans to begin pitching the idea to central banks. The ‘utility settlement coin’, as UBS has named it, is designed to be a more efficient way for large financial institutions to trade.
The utility settlement coin is based on a product developed by Clearmatics Technologies and will allow financial institutions to pay for securities without waiting for a traditional money transfer. Instead digital coins would be traded, which could then be cashed out for local currencies by central banks.
The utility settlement coin is designed to be a more efficient way for large financial institutions to trade
While blockchain is most commonly known as the technology powering the digital currency bitcoin, it has the potential for a number of more mainstream financial applications. Blockchain allows for transactions to be verified and recorded without the need for a central ledger, potentially speeding up back office settlement systems. It also has the potential to benefit regulators by providing a greater level of transaction transparency.
Since a list of transactions would be distributed among a network of computers rather than at a central entity, regulators could find monitoring transactions an easier task.
The coin is technology that UBS has had in development for some time: The Wall Street Journal reported in September 2015 the Swiss bank had begun working on the virtual currency. At the time UBS said it was not planning on issuing the digital coins itself, but was instead working with other entities to create an international standard.
The group is currently aiming for a limited launch of the digital currency in 2018.
While there is the potential for significant benefits, there is still some concern surrounding the security of blockchain transactions. A high-profile hack in August of the bitcoin exchange Bitfinex cost its clients over $60m in stolen bitcoin.