JPMorgan Chase, the largest U.S. bank (and the world's sixth largest), has created its own cryptocurrency, a stablecoin called "JPM Coin."
According to CNBC, J.P. Morgan "moves more than $6 trillion around the world every day for corporations in its massive wholesale payments business," and in a few months, it will start trials for use of this new cryptocurrency for instant settlement of payments between its clients.
The report says that J.P. Morgan is for a future blockchain-powered world, but before that happens, it "needed a way to transfer money at the same dizzying speed that those smart contracts closed, rather than relying on old technology like wire transfers."
Umar Farooq, Head of J.P. 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. The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this."
This trial is going to be one of the first real-world use cases of cryptocurrency in the banking world. The only users of the new cryptocurrency "big institutional clients of J.P. Morgan that have undergone regulatory checks, like corporations, banks and broker-dealers."
JPM Coin is a stablecoin in that each one is "redeemable for a single U.S. dollar." 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."
Farooq says these are the main applications that he sees (at least, initially) for JPM Coin:
- "international payments for large corporate clients, which now typically happens using wire transfers between financial institutions on decades-old networks like Swift" (these "payments will settle in real time, and at any time of day");
- "securities transactions" (instead of "relying on wires to buy the issuance," institutional investors can use JPM Coin, which results in "instant settlements")
- for clients that use "J.P Morgan's treasury services business to replace the dollars they hold in subsidiaries across the world"
"Money sloshes back and forth all over the world in a large enterprise. Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it."
Also, he sees in the future the use of JPM Coin for "payments on internet-connected devices if that use for blockchain catches on."
"Pretty much every big corporation is our client, and most of the major banks in the world are, too. Even if this was limited to JPM clients at the institutional level, it shouldn't hold us back."
What makes today's news so surprising is that this is the same bank whose Chairman and CEO Jamie Dimon has up to now been very critical of cryptocurrencies, especially Bitcoin. Here are a few of the things Dimon has said in the past:
According to Bloomberg, on 13 September 2017, an investor conference in New York, he called Bitcoin "a fraud", saying that it was “worse than tulip bulbs." And if a JPMorgan trader began trading in Bitcoin, he said: “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.” He didn't stop there, going on to say: "If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars. So there may be a market for that, but it’d be a limited market.”
On January 2018, in an interview with FOX Business's Maria Bartiromo, said that he regretted his previous comments about Bitcoin, and expressed his faith in blockchain technology: "The blockchain is real. You can have crypto yen and dollars and stuff like that. ICO's you have to look at individually. The bitcoin to me was always what the governments are gonna feel about bitcoin as it gets really big, and I just have a different opinion than other people. I'm not interested that much in the subject at all.”
In an interview with the Harvard Business Review (July–August 2018 Issue), here is what he had to say about crypto: "I probably shouldn’t say any more about cryptocurrency. But it’s not the same as gold or fiat currencies. Those are supported by law, police, courts. They’re not replicable, and there are strictures on them. Blockchain, on the other hand, is real. We’re testing it and will use it for a whole lot of things."
However, to be fair, J.P. Morgan has been heavily involved in blockchain research. In fact, its Blockchain Center of Excellence (BCOE) "leads efforts for applications of distributed ledger technology (DLT) within J.P. Morgan," and they have a product called Quorum, which is an enterprise-focused (read "permissioned") version of Ethereum.
Featured Image Courtesy of JPMorgan Chase