Reasons Why Major Global Banks Are Developing Their Own Cryptocurrency
Four major international banks have joined efforts to create their own cryptocurrency. The initiative includes UBS, Deutsche Bank, Santander and Bank of New York Mellon.
They are planning to establish a network and use the new cryptocurrency in transactions between branches. The goal is to facilitate operations and reduce costs.
The new cryptocurrency product is expected to be available in 2018. The move could not only change the mechanism of interactions between banks but could also become a breakthrough step to abandon conventional fiat money.
The banks, who are also member of the R3 Blockchain Consortium, agreed to use the new digital cash, the Utility Settlement Coin (USC), to reduce time of transactions. Deals made in the USC would then be converted into traditional currencies in central banks.
Other financial corporations are also developing similar cryptocurrency-based payment systems. For example, Citigroup is developing Citicoin while JPMorgan and Goldman Sachs are working on the SETLcoin project.
Major international banks have branches in many countries and thus transactions within one corporation are made in local currencies. As a result, companies have to convert the transactions according to local exchange rates. That requires expensive software, many personnel and depositories.
Traditionally, transactions between branches in different countries are conducted in US dollars and euros. However, the banks understand that a united corporate currency would be less costly. Taking into account the scope of activities of the four corporations, their new currency will be high in demand.
The main difference between the USC and Bitcoin is that the four banks will be the centralized issuer of the currency. Bitcoin has no central issuer, which can be regarded as its main advantage and disadvantage at the same time. Until recently, many central banks had prejudices towards bitcoin due to the very same reason.
"It is normal. Bitcoin was a shock for central banks. Usually, there are rules that any financial and payment organization must comply with. If there are any problems a client can go to the bank or processing center. With Bitcoin, there is no center or bank," Viktor Dostov, head of the Russian E-Money Association, told Lenta-ru
Bitcoin was first used in transactions in the United States in 2008-2009.
According to Dostov, now regulators are examining the ways of working with cryptocurrencies. For instance, a license on Bitcoin transactions was introduced in New York. Central banks around the world are gradually easing its policy towards cryptocurrencies.
"I think that the Russian Central Bank should also change its stance," the expert said.
Commenting on the future of cryptocurrencies, Dostov suggested that they are unlikely to replace traditional money but governments and central banks are interested in developing them.
"I think that in the future there will be a wide range of cryptocurrencies, from libertarian like Bitcoin and those issued and regulated by central banks," he said.
The system developed by UBS, Deutsche Bank, Santander and BNY Mellon is likely to be the first successful use of blockchain technology in the corporate segment. If it helps significantly reduce costs cryptocurrencies might start replacing traditional currencies in the banking sector.
