Six global banks team up to create new digital currency

Bitcoin is one example of a cryptocurrency

Six leading global banks have joined forced to create their own form of digital currency which they hope to launch next year.

Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street have come together for a project to create the currency to clear and settle financial transactions using blockchain.

The “utility settlement coin” was created by UBS to make financial markets more efficient, and has shifted into a new phase of development, according to the Financial Times.

Members have started having more in-depth conversations with central banks and are working on tightening up data privacy and cyber security protections, the paper reports.

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Hyder Jaffrey, head of strategic investment and fintech innovation at UBS, said: “We have been in discussions with central banks and regulators and we will continue that over the next 12 months with the aim of a limited ‘go live’ at the back end of 2018.”

Blockchain, which is the technology that underpins bitcoin, involves a set of algorithms that can allow cryptocurrencies to be traded and verified electronically over a network of computers without a central ledger.

Despite initial scepticism towards the technology due to concerns over fraud, banks are now exploring how they can exploit blockchain to speed up back-office settlement systems and free billions in capital tied up supporting trades on global markets.

The utility settlement coin aims to let financial groups pay each other or to buy securities, such as bonds and equities, without waiting for traditional money transfers to be completed.

Instead digital coins that are directly convertible into cash at central banks are used, cutting the time, cost and capital required in post-trade settlement and clearing.

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The coins, each convertible into different currencies, would be stored using blockchain, or distributed ledger technology, allowing them to be swapped quickly for the financial securities being traded.

After its initial launch, the currency is expected to be used by banks so they can pay each other in difference currencies.

Jaffrey added: “This is not going to come in with a big bang, it is going to come in with a series of developments over time.

“But following legal, regulatory and accounting viewpoints, we now feel we have a structure that gives us a basis to move on to phase three with a workable structure.”

About the author

Jayna is senior reporter and investment trust correspondent at Investment Week. She joined the publication in August 2015 after graduating with an MA in Multimedia Journalism from the University of Kent.

Jayna holds the NCTJ diploma and has experience in print, online and broadcast journalism. She regularly contributes towards the Investment Week monthly podcast.

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