UBS to Launch “Utility Settlement Coin” in Collaboration with 10 Financial Institutions

While banks have been largely opposed to the digital currency bitcoin due to its decentralized peer-to-peer nature that threatens banks’ business models, they are not shying away from using bitcoin’s underlying technology, the blockchain, to develop their payment systems.

An example of this would be UBS’ new digital currency, the “utility settlement coin” which is set to launch next year for clearing and settlement financial transactions.

The “utility settlement coin” project was launched in 2015 by Swiss bank UBS in an attempt to make the financial markets more efficient through the implementation of blockchain technology into the system.

The “utility settlement coin” (USC) is asset-backed digital cash that aims to allow financial institutions to trade securities without one another but without having to wait for traditional money transfers to be completed. Instead, they would send and receive digital tokens that are convertible into fiat currency at the central banks. Digital currency, in turn, would reduce the time, capital required, and costs of the post-trade cycle.

The digital tokens would be convertible into any fiat currency and stored on a distributed ledger so that they could be exchangeable with financial securities.

More Banks Joining the Project

On August 31, 2017, the Financial Times reported that six further banks joined the project including State Street, MUFG, Barclays, Credit Suisse, HSBC, and Canadian Imperial Bank of Commerce. Existing members include BNY Mellon, Deutsche Bank, Banco Santander, and NEX.

These new banks have joined the project as it moves into a new phase of development that involves the partaking banks further engaging with central banks as well as improving cyber security and data privacy protection.

UBS’ Head of Strategic Investment and Fintech Innovation, Hyder Jaffrey, said, “We have been in discussions with central banks and regulators and we will continue that over the next 12 months with the aim of a limited ‘go live’ at the back end of 2018.”

“This isn’t going to come in with a big bang, it is going to come in with a series of developments over time.”

Jaffrey expects the “utility settlement coin” to be used for interbank payments before the end of the year. However, he says before the coin could be utilized for securities settlement, the securities themselves would have to be on a blockchain for the system to work. Otherwise, all benefits of speed and cost reduction would be lost.

Also, central banks will need to buy into the idea of UBS’ “utility settlement coin” as opposed to issuing their own central bank digital currencies existing in a similar format, which, of course, could mean the end of the “utility settlement coin” project.