Big banks have set their sights on establishing a new form of digital currency, one they hope will become the industry standard in transactions made over blockchain.
UBS, Deutsche Bank, Santander and BNY Mellon are joining forces in the development of the new digital currency, reportedly already pitching the idea to central banks and aiming for an early 2018 commercial launch.
In what could prove to be the biggest example of banks co-operating on blockchain technology, Julio Faura, head of R&D and innovation at Santander, told the FT: “Today trading between banks and institutions is difficult, time-consuming and costly, which is why we all have big back offices. This is about streamlining it and making it more efficient.”
Blockchain is the technology which underpins so-called cryptocurrencies, with the most famous example being that of Bitcoin. A blockchain is the structure of data that represents a financial ledger entry, or a transaction record. Each transaction is digitally signed to ensure that it is authentic and essentially tamper-proof. Banks could use the technology to speed up processes and reduce the cost of clearing and settling trades.
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. What that allows us to do is to take away the time these processes take, such as waiting for payment to arrive. That frees up capital trapped during the process.”
The four banks cooperating in the project already have experience in the blockchain space. UBS pioneered the ‘utility settlement coin’ while Santander was the first bank to pilot a blockchain payments app.
Tech companies are also keen to be involved in blockchain with Microsoft partnering with banks to speed up blockchain adoption and IBM launching cloud services to give organisations a secure environment for blockchain networks.