JP Morgan Chase to trial new cryptocurrency
In a first by a major US bank, JP Morgan Chase is preparing to launch its own cryptocurrency.
According to CNBC, JPM Coin will be used in trials that are set to start in a few months. The bank moves more than $6 trillion around the world every day for corporations in its wholesale payments business. The trials will naturally start off small, but such a large bank doing this has huge implications.
JP Morgan’s interest in blockchain – as preparation for this digital currency – is well known.
In May 2018, it filed an application to the US Patent and Trademark Office to patent an interbank payments system based on the distributed ledger technology (DLT).
And way back in 2016, it started developing its own blockchain, called Quorum, on the Ethereum network.
In this latest chapter, Umar Farooq, head of JP Morgan’s blockchain projects, told CNBC: “So anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction.”
Farooq adds: “The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.”
CNBC says unlike Bitcoin, only big institutional clients of JP Morgan that have undergone regulatory checks, like corporations, banks and broker-dealers can use the tokens.
You may recall that in 2017, JP Morgan Chase CEO Jamie Dimon got plenty of attention with his scepticism and criticism of Bitcoin – calling it a “fraud”.
Using the 17th century tulip bulb craze analogy (like 99% of other people), Dimon said: “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”
But for clarity, Dimon and his managers have consistently said that blockchain, as well as digital currencies that were regulated, hold promise.
Each JPM Coin is redeemable for a single US dollar, so its value shouldn’t fluctuate, similar in concept to 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.
There are three early applications for the JPM Coin, according to Farooq.
The first is for international payments for large corporate clients, which now typically happens using wire transfers between financial institutions on networks like Swift.
The second is for securities transactions. In April, JP Morgan tested a debt issuance on the blockchain, creating a virtual simulation of a $150 million certificate of deposit for a Canadian bank.
The final use for JPM Coin would be for huge corporations who use JP Morgan’s treasury services business to replace the dollars they hold in subsidiaries across the world, Farooq says.
“Pretty much every big corporation is our client, and most of the major banks in the world are, too,” Farooq adds. “Even if this was limited to JPM clients at the institutional level, it shouldn’t hold us back.”