UBS is leading a team of banks developing a blockchain-based system to enable financial markets to rapidly settle transactions and make payments. On August 31, 2017, UBS announced that six additional banks have joined the group developing the system, which is set to launch in late 2018. The banks are collaborating to use blockchain technology to increase speed and efficiency in business transactions. To do so, UBS has developed a "Utility Settlement Coin" ("USC"), a digital cash equivalent of each of the major currencies backed by central banks, rather than a decentralized new digital currency like Bitcoin. There would be multiple USCs each paired with a corresponding domestic currency, such as the dollar or euro, making it fully backed by cash assets at a central bank. Consequently, spending a USC would be the same as spending the real currency it is paired with.
Currently, transactions under the traditional settlement system used by banks can take several days to finalize and can be costly to the financial industry. Blockchain works as a tamper-proof distributed ledger that can automatically process and settle transactions using computer algorithms. Instead of relying on the third party to verify the parties' data and then provide feedback about the accuracy of the data, the USC will rely on a shared ledger - a blockchain, like the one behind Bitcoin, to record transactions promptly and allow payment tokens to go directly to the asset's seller, rather than passing through an intermediary. The USC would not be its own cryptocurrency like Bitcoin, but rather, a convertible substitute for major currencies such as the dollar or the euro.
This venture marks the first time banks have teamed up to work on a digital cash settlement system. It is anticipated that the USC will most likely be used in the interbank market to start with, enabling banks to repay each other in different currencies without having to go through the current cross-border settlement structure and instead rely on blockchain. Digital cash equivalents like the USC may present an opportunity for financial institutions to remain competitive against decentralized new digital currencies like Bitcoin.
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