In a surprising move banking giant JPMorgan has announced the release of its cryptocurrency JPM Coin. It is claimed to be the first cryptocurrency to be issued by a bank. The token will be used mainly to settle payments using the money, securities, and other assets by the company’s payment business clients.
Umar Farooq, the head of JPMorgan’s blockchain operations, told CNBC that trials of JPM Coin are expected to start in the coming months.
He also described three possible uses for the token:
The first is for international payments for large corporate clients which now typically happens using wire transfers between financial institutions on decades-old networks like Swift. Instead of sometimes taking more than a day to settle because institutions have cut-off times for transactions and countries operate on different systems, the payments will settle in real time and at any time of the day.
The second is for securities transactions. In April JPMorgan tested a debt issuance on the blockchain creating a virtual simulation of a $150 million certificate of deposit for a Canadian bank. Rather than relying on wires to buy the issuance which results in a time gap between settling the transaction and being paid for it, institutional investors can use JPM Coin which results in instant settlements.
The final use would be for huge corporations that use JPMorgan’s treasury services business to replace the dollars they hold in subsidiaries across the world. Unseen by retail customers the business handles a significant chunk of the world’s regulated money which flows for companies from Honeywell International to Facebook, moving dollars for activities like employee and supplier payments. It generated $9 billion in revenue last year for the bank.
“Money sloshes back and forth all over the world in a large enterprise. Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it.” said Umar Farooq.
Each JPM Coin is redeemable for a single U.S. dollar so its value shouldn’t fluctuate (similar in concept to so-called stablecoins). Clients will be issued the coins after depositing dollars at the bank. After using the tokens for a payment or security purchase on the blockchain the bank destroys the coins and gives back the clients a commensurate number of dollars.