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JPMorgan revealed plans to launch its own cryptocurrency, dubbed JPM Coin, to transform its wholesale payments business, per CNBC.
The JPM Coin, which will be issued to clients upon depositing money at the bank, will initially be rolled out to a small number of customers in a few months and allow near-instant payments settlement over the bank’s blockchain network. The banking giant said the use of JPM Coins will reduce customers’ settlement and counterparty risk, as well as lower capital requirements.
While in 2017, the bank’s CEO Jamie Dimon called cryptos a fraud, he has since said that blockchain, cryptos’ underlying technology, and regulated cryptocurrencies hold promise.
The JPM Coin differs from other conventional cryptocurrencies in two key ways:
- JPMorgan’s digital coin is pegged to the dollar. Once transactions, such as payments, have been completed, holders of the digital coins can redeem them for dollars from JPMorgan at 1:1 ratio. JPM Coins are effectively what is called a "stablecoin" and are not subject to the significant price volatility that other cryptos, such as Bitcoin, are impacted by.
- The new currency will only be available to wholesale clients. In contrast to conventional cryptos, where no single entity controls the rights to purchase or hold them, JPM Coins will be centrally controlled by JPMorgan. Only customers who have passed anti-money laundering tests and are approved by the regulator will be able to use the bank’s blockchain network.
The banking giant's digital currency could also be used for other applications on top of payments settlement:
- JPM Coin could be used for securities transactions. Last year, the bank used its blockchain platform, Quorum, to test a debt issuance application, mirroring the execution of an actual transaction for the National Bank of Canada and other large corporations. In the future, institutional investors could use the digital coins for instant settlement of similar securities transactions that run on JPMorgan’s Quorum.
- It could allow its wholesale clients to earn more from their cash through money consolidation. JPMorgan’s head of blockchain projects, Umar Farooq, said that subsidiaries of large corporations might be able to represent cash on their balance sheets without having to receive actual money from their parent company; JPM Coin transfers could be used instead.
There is significant adoption potential for JPMorgan’s token money, given the size of its wholesale business, and rollouts like this signal increasing engagement with blockchain by banks going forward. The banking giant moves over $6 trillion globally per day for companies, while its wholesale clients include 80% of all Fortune 500 corporations, giving JPM Coin a solid chance to see widespread adoption.
Other financial institutions (FIs) have also tested a variety of blockchain applications: The Utility Settlement Coin (USC) project, with members including UBS, BNY Mellon, Deutsche Bank, and Santander, aims to develop a form of asset-backed digital cash to be used in clearing and settling transactions on a blockchain platform, for instance; it hoped to go live at the end of 2018, but has yet to do so.
As more blockchain applications go live — HSBC settled $250 billion in forex trades in 2018 using the technology, for example — and demonstrate a variety of successful use cases, we expect to see more FIs rolling out similar projects.
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