One Coin to settle them all?

One Coin to settle them all?

November 3, 2016/ Deepak Bharadwaz

Hardcore cryptocurrency promoters strongly believe that decentralized cryptocurrency will slowly overtake the established financial system. However, the core of the Bitcoin innovation, Blockchain technology, has gained ready acceptance on Wall Street. Owing to its numerous applications, major banks are moving in on Blockchain to harvest its applications. One of the major problems that has been plaguing major banks is the vastly prevalent high settlement times. To combat the problems presented/could not be solved by legacy technological infrastructure, banks have come together for a Blockchain driven solution. Let’s look into the legacy problems and how banks are implementing ledger based solution:

The Settlement problem:

When it comes to international and inter-bank transactions, the time of settlement is high which holds up the transactions. Even the slow settlement times of credit card transactions fall under this category. Slow settlement times amount to loss of value of transactions due to holding up of the money. This would mean the loss of investment opportunities in time.

Major Banks have come together to minimize the settlement time by harnessing Blockchain with UBS spearheading the initiative. They are using Blockchain based tokens to quickly transfer settlement amounts and later cash them in.

Settlement Coin:

UBS’ Blockchain based “Utility Settlement Coin” is all set to be the next interbank cryptocurrency for quick settlements. BNY Mellon, Deutsche Bank, ICAP and Santander have backed the setup. These banks are more likely to implement it upon a shared common protocol agreed upon. More importantly the banks’ cryptocurrency tokens will be linked to fiat currencies. This would also factor in the connected Blockchain making it easy to have the conversions in various fiat currencies.

The advantages:

The advantages are centered not only around the quick transfers but also quick conversions to local fiat currencies. The banks’ cryptocurrency or tokens could be linked to established national fiat currencies (EUR,GBP, USD, YEN…) to facilitate easy conversion.

Hyder Jaffery, head of UBS strategic investment and fintech innovation commented:

    “Digital cash is a core component of a future financial market fabric based on blockchain technologies. There are several digital cash models being explored across the Street. The Utility Settlement Coin is focussed on facilitating a new model for digital central bank cash.”

As today’s settlement and clearing is a process involving many institutions, collaboration is vital for alternatives to current models. Hence UBS has taken the same path for lesser settlement times.

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