US bank JP Morgan has announced plans to issue its own cryptocurrency to be used in its wholesale payments business.
To be called JPM Coin, the cryptocurrency will be issued to customers who deposit money with the bank. It will then be used to make payments over the bank’s network.
The bank says it will speed up payment settlement, reduce counterparty risk and lower capital requirements.
It will be trialled with a small number of customers over the next few months.
JP Morgan says its digital currency will differ from conventional cryptocurrencies in a number of ways. It will be pegged to the US dollar, redeemable from the bank at a 1:1 ratio. This makes it a “stablecoin”.
JPM Coin will not be open-access in the way other cryptocurrencies are. It will only be available to large clients. Customers need to pass anti-money laundering tests and other regulatory checks before being allowed to the use network.
And in contrast to conventional cryptocurrencies, where no single entity controls the rights to purchase or hold them, JPM Coins will be controlled by JP Morgan.
Umar Farooq, head of digital treasury services and blockchain at JP Morgan, told Bloomberg News: “Many of our clients move money in different ways and they’re looking for a more real-time way to move value around.”
JP Morgan processes more than US$5 trillion of wholesale payments each day. Farooq said global banks sometimes have difficulty clearing cross-border payments in real time using the SWIFT network, which is the main network for international banks transfers.
Bloomberg reports that JP Morgan is not the only bank developing a digital currency. Mitsubishi UFY Financial Corp has been working on MUFG Coin since 2016. US bank Signature Bank launched a digital coin for real-time payments earlier this year and reports that “scores of institutional clients have started using it to send money to each other.
Some commentators are sceptical. The chief executive of blockchain company Stasis in Malta, Gregory Klumov, says: “They’re taking an existing internal process and making it a little bit faster. It doesn’t have any long-term disruptive potential for public blockchains.