Banks Announce Plan for Utility Settlement Coin

Blockchain

Several big banks running the very system of money exchange that bitcoin was created to replace are now planning on co-opting bitcoin technology.

This blog previously discussed that banks were interested in using blockchain technology to make money transfers faster and more secure.  Now, UBS, Deutche Bank, Santander, and BNY Mellon, along with broker ICAP, have joined together to present the idea of creating a blockchain backed technology to make the process of clearing and settling trades, which is currently estimated to cost $65-80 billion a year, more efficient.  Called the “utility settlement coin”, based on an idea that USB had previously announced was in concept stages with startup Clearmatics, the digital currency would be backed by actual currencies and work with Clearmatic’s pre-existing Decentralized Clearing Network.  Instead of creating a currency that is delinked from existing assets like bitcoin and other alternative currencies, this technology would be a way to clear trades of existing assets, including stocks and various currencies, faster.  The transfer could be instantaneous instead of taking several days to clear.  As a presenter at a financial conference at the Federal Reserve remarked, blockchain technology doesn’t just support the creation of new currencies, it is a new medium for money.

These banks are hoping to unveil more concrete plans in the coming months and launch such technology by early 2018.  However, beyond the technological and regulatory acceptance problems, the utility settlement coin also has the problem of being one of many proposed solutions. Citigroup and Goldman Sachs have both started developing their own types of digital currency, and other start-ups like R3CEV which filed a patent for a financial blockchain platform, are also innovating in the field.  For the technology to work as a way to quickly settle transactions among banks globally, it would likely have to have broad adoption.

While it remains to be seen what the final global settlement solution will be, the days of settling a trade in three days (or even two) will likely soon be a thing of the past.

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