The world’s biggest and most influential banks – UBS, Deutsche Bank, Santander, and BNY Mellon – have joined efforts to create a new form of digital cash as the industry standard to clear and settle financial trades over blockchain.
The initiative is an excellent example of cooperation between leading banks for the purpose of blockchain technology adoption to employ the power of decentralised computer networks and improve the efficiency of financial market plumbing.
“Today trading between banks and institutions is difficult, time-consuming and costly, which is why we all have big back offices,” said Julio Faura, head of R&D and innovation at Santander. “This is about streamlining it and making it more efficient.”
Financial Times notes that banks used to be rather skeptical about the blockchain due to its vulnerability to fraud. Now, financial institutions all over the world treat the technology more seriously and start exploiting it to speed up back-office settlement systems and free billions in capital tied up supporting trades on global markets.
“You need a form of digital cash on the distributed ledger in order to get maximum benefit from these technologies,” said Hyder Jaffrey, head of fintech innovation at UBS. “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.”
According to Jaffrey, the project team will strive to get approval of regulators during next year. The banks are planning a “limited and low-risk” commercial launch by early 2018. The consortium members will do their utmost to prove that system based on the blockchain technology can improve transparency for regulators.
UBS, Deutsche Bank, Santander, and BNY Mellon are not the only ones who decided to develop a digital cash system. Setl, a London-based group founded by hedge fund investors and trading executives last year, is also working to launch payments settlement with digital cash linked directly to central banks. Goldman Sachs has filed a patent for a “SETLcoin” to allow trades to be settled near-instantaneously while Citigroup is developing its own “Citicoin” solution. JPMorgan is known for a similar project.
The Australian Stock Exchange (ASX) announced its intention to develop new post-trade platforms on the blockchain technology at the beginning of the year. It has become one of the 13 leading investors in fintech company Digital Asset Holdings. Altogether the latter raised $50 million. Thus ASX hopes to become the first stock exchange in the world to use distributed ledger technology for public companies.
Clearmatics Technologies has come up with the utility settlement coin intended to allow financial institutions paying for securities, such as bonds and equities, without waiting for traditional money transfers to be completed. They will save time and reduce cost of post-trade settlement and clearing by using digital coins directly convertible into cash at central banks.