J.P. Morgan is developing the first cryptocurrency created by a large bank in the United States. Trials are supposed to begin over the next months, and it’s something that is called “JPM Coin.” This digital token will help settle payments instantly between clients.
Every day, the bank can move more than $6 trillion around the world, so it wants to prepare for the future. As corporate debt issuance and cross border payments are moving to the blockchain, this type of cryptocurrency is needed. The blockchain is the database technology that was first made famous by Bitcoin. For the future, banks need a way to transfer money at faster speeds, and they can’t rely on old technology, such as wire transfers.
Some may think that this new currency is an unexpected development for the bank. This technology initially came out as part of the wreckage of the financial crisis. It was supposed to disrupt the already established banking world, but it never quite took off the way some people expected.
When these payments are tested, it is going to be the first real-world application for cryptocurrency in banking. Much of the industry has shunned these payments as too risky. J.P. Morgan and a couple of other lenders originally forbid the purchase of Bitcoins. Goldman Sachs had plans to make a Bitcoin trading desk but, after exploring more about this potential idea, it decided to shelve the project.
Many holders of current digital currency, such as the Bitcoin, may like the news that a major financial institution is coming up with its currency. However, many retail investors probably won’t get a chance to hold this currency. Only large institutional clients of the bank that have already undergone regulatory checks, such as banks, broker-dealers, or corporations, will be able to use this currency.
There are some differences between the JPM Coin and the Bitcoin. Each JPM Coin will be redeemable for a single U.S. dollar, so the value won’t fluctuate, unlike the Bitcoin. Clients will be issued coins after depositing dollars at the bank. Once the tokens are used for security purchase on a blockchain or for payment, the bank will destroy the coins and the client will be given back the equal value in dollars.
There will be initial early applications for the JPM Coin. The first will be for international payments for big corporate clients. These payments are currently done using wire transfers. The second is for securities transactions, which also currently rely on wires. The third would be for the corporations that are using J.P. Morgan’s treasury services business to replace dollars that are held in subsidiaries across the world.