UBS, Deutsche Bank, Santander, and BNY Mellon are working on a new blockchain-based digital currency.
Currently, the new currency is being referred to by the banks simply as “utility settlement coin.”
The four banks involved belong to the R3 consortium of 50 institutions looking into improving distributed ledger tech.
“You need a form of digital cash on the distributed ledger in order to get maximum benefit from these technologies,” said Hyder Jaffrey at UBS. “What that allows us to do is to take away the time these processes take, such as waiting for payment to arrive. That frees up capital trapped during the process.
The move is significant because it is the first time such a group of first-rate banks have set about creating a specific currency, although Citigroup and Goldman Sachs are also working on digital currencies.
For banks, the main benefit of digital currency is easing transactions between institutions by removing the third party settlement. Banks spend around $65 to 80 million every year on settlement and other associated processes, and it has been estimated that using a blockchain-based digital currency could reduce that by around $20 million.