In a first for the real world, a bank is finally launching its own virtual currency. JP Morgan, one of the largest commercial banks across the world will soon make its crypto live for clients. JPM Coin, the virtual currency will be used by the New York-based bank to instantly settle payments between clients.
J.P. Morgan is preparing for a future in which parts of the essential underpinning of global capitalism, from cross-border payments to corporate debt issuance, move to the blockchain. That's the database technology made famous by its first application, bitcoin. But in order for that future to happen, the bank needed a way to transfer money at the dizzying speed that those smart contracts closed, rather than relying on old technology like wire transfers.
"So anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction," said Umar Farooq, head of J.P. Morgan's blockchain projects. "The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this."
Last year, J.P. Morgan and two other lenders banned the purchase of bitcoins by credit card customers. And Goldman Sachs reportedly shelved plans to create a bitcoin trading desk after exploring the idea.
Though holders of digital currencies may seize on the news that a major financial institution is issuing its own crypto as bullish for the asset class, retail investors will probably never get to own a JPM Coin. Unlike bitcoin, only big institutional clients of J.P. Morgan that have undergone regulatory checks, like corporations, banks and broker-dealers can use the tokens.
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 clients back a commensurate number of dollars.
Here are few early applications for the JPM Coin -
Instead of sometimes taking more than a day to settle Swifts 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 day.
The second is for securities transactions. In April, J.P. Morgan 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 — resulting in a time gap between settling the transaction and being paid for it — institutional investors can use the J.P. Morgan token, resulting in instant settlements.
Now, many fintech companies are collaborating with blockchain payment technology makers like Ripple for faster cross border payments. So coming from a leading bank sprucing its own crypto is not a big surprise and can be adopted by fellow players as well. But, the large market share in corporate payments will certainly give JP Morgan an edge above all other competitors.
The bank already has acquired banking partnerships with 80% of the Fortune 500 companies. It will give JPM coins a fair chance of world wide adoption.