As per the latest reports doing the rounds since today morning, leading banks in Europe, Japan, and the United States are in the process of building digital coins that are based on the blockchain technology. These digital coins will be used as a handy tool to settle cross-border money transfers instantaneously. Moreover, as this blockchain-backed coin will eliminate the intermediaries usually found in the overseas settlements process, the transaction cost will be reduced to a great extent.
The reports also revealed that a company called Fnality International had been founded recently in London to handle this ambitious project. Fnality International has raised the capital of approximately fifty million pounds (worth 63.1 million dollars) from as many as 14 prominent banks of Europe, Japan, and the US. These banks include Japan’s Sumitomo Mitsui Banking Corp. and MUFG Bank, Europe’s Credit Suisse, Barclays, and UBS, as well as State Street based in the United States. Apparently, the banks of Japan have each furnished a contribution of a few 100 million yen to the company.
What will be the process?
According to the reports, Fnality will be setting up accounts at all those central banks which are a part of the project to issue USCs, short for Utility Settlement Coin. These USCs will be acting as a digital equivalent of the prime currencies which can be easily converted into its paired currency. The conversion will be a smooth one-to-one process.
Let’s consider an example where a client wants to make a money transfer to the States from Japan. In such a case, a commercial bank of Japan will transfer the stated yen to the concerned nation’s central bank. Then, an equivalent sum of USCs will be issued and deposited at a particular US commercial bank’s account by Fnality. This American bank will then transfer the equivalent sum of dollars to the account of the end client.
What are the advantages?
The Utility Settlement Coins will find backing by the global central banks and usage only by the financial entities. As a result, the risks associated with price fluctuations will be greatly reduced. The involvement of leading global central banks and the use of blockchain technology will make the transfers significantly faster yet safer at the same time. Furthermore, it would be impossible to modify the past transaction records thanks to the blockchain tech.
USCs, reflecting the rate of foreign exchange, will also alleviate the foreign exchange risks generally experienced in traditional overseas transfers. Additionally, USC will also get rid of the requirement of purchasing the destination market currency, which will make way for swifter order processing. The involvement of intermediaries in foreign transfers will also bid adieu.
It was also learned that Fnality will initiate further talks with central bank representatives for the purpose of USB account establishments. Initially, the project will support yen, pounds, euros, Canadian dollars, and United States dollars. If things go as planned, the first-ever USC will be issued until late 2020.