Amid the rise of cryptocurrencies, global banks are teaming up to create a digital coin

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Multiple global banks are joining a development network to help establish a new digital currency for faster transaction settlements.

According to the Financial Times, the project was set up by UBS bank to establish a “utility settlement coin” using blockchain technology.

The coin is based on a product developed by a company called Clearmatics Technologies. The aim is for the digital currency to allow global banks to conduct payments or buy securities such as stocks and bonds instantly, bypassing the usual time delays required for such transactions.

“Instead they would use digital coins that are directly convertible into cash at central banks, cutting the time, cost and capital required in post-trade settlement and clearing,” the Financial Times said.

The coins will be stored on a distributed ledger using blockhain, as opposed to a centralised clearing mechanism. Each settlement coin will be convertible into different currencies to allow for flexibility in the type of transactions that are carried out.

The concept was created by UBS, who were joined by Deutsche Bank, Banco Santander, BNY Mellon and financial technology company NEX.

Now another six banks are on board, with Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street joining the development process.

UBS’ head of fintech innovation Hyder Jeffrey told the FT that discussions with central banks and regulators will be ongoing over the next 12 months, with the aim of a limited live roll-out at the end of 2018.

According to the Financial Times, global banks are now fully engaged with how to use distributed ledger technology to speed up transactions, after initially voicing concerns around fraud risk.

Jaffrey said that the project will develop in a series of stages towards the end goal for instant settlments, as opposed to a big-bang introduction.

“Following legal, regulatory and accounting viewpoints, we now feel we have a structure that gives us a basis to move on to phase three with a workable structure,” he told the FT.

While the end-product is still some way from completion, the use of blockchain systems by major financial institutions will be worth monitoring as the technology develops.

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