Blockchain and cryptocurrency are the world’s emerging technologies. Cryptocurrency is expanding, and so is blockchain technology. Various organizations can use the blockchain technology, but financial institutions are greatly to be profited if implemented. Many leading financial institutions have started adopting and experiment with it.
Now, some of the leading banks within the United States, Japan, and Europe are coming with a new initiative, and this too is related to blockchain technology. The major banks of the countries mentioned above are in the process of designing a digital coin powered by blockchain. The only aim of designing a blockchain based digital coin is to use it quickly to settle international money transfers and reduce transaction charges by removing agents.
Regarding who will lead the blockchain project, Fnality International- a London based company will run the blockchain digital coin project. Fnality International is recently established with a capital amount of 50 million pounds (approx. $63.1 million). Various companies have invested in this startup firm, namely, MUFG Bank and Sumitomo Mitsui Banking Corporation of Japan, Europe’s Credit Suisse and Barclays, UBS, and State Street of the United States. Among these Japanese Banks are expected to have invested around hundred millions of yen each.
As of now, the cross-border transfer is time-consuming, and transaction charges are high, it includes additional charges to process the overseas transaction. The existing cross-border transfer needs to go through various levels, needs third party-agents to carry transactions, if various other currencies are involved, then it needs the foreign exchange market to transact, this will further add extra charges and another cost to the process. The new digital cross border system may not experience this.
Fnality International will prepare accounts at participating central banks and will give utility settlement coins (USCs). USCs are similar to digital coins of leading currencies that can be changed to their paired currencies, one-to-one basis.
When a customer sends money from Japan to the United States, commercial bank of Japan will transfer the fixed amount of yen to the country’s central bank. Fnality International then offers the same amount of USC, deposits them into an account at a specified commercial bank of America. The American commercial bank then transfers the same amount of dollars at the end of the customer’s account.
The central banks will support the USC, further reduces the risk of price volatility and offers a better stable way for interbank exchanges.
The price of cryptocurrencies are not stable, often fluctuates while USCs represent the rates of foreign exchange. Use of USCs will allow for a quick settlement, unlike in traditional transaction, there are numerous foreign exchange risks, and transaction settlement is time-consuming, USC will reduce the foreign exchange risks and also the time.
The process that requires a day or longer will be carried out much faster by USCs; with USCs the need to purchase the specific destination currency within the market will be removed, further enables for orders to process quickly.
Fnality International is planning to discuss more with the members of central banks, especially about creating USB accounts.
As of now, the platform will support fiat currencies such as US dollars, yen, Canadian dollars, pounds, and euros. The London based firm is trying to hold talks with central banks and set to release the first USC by the end of 2020.
USC will play a significant role as they will be used only by financial organizations and supported by central banks.