Goldman Sachs CEO Looking at the Potential of Tokenization

Neil Dennis

David Solomon, chief executive of Goldman Sachs, has said the investment bank plans to use blockchain technology and that it is already doing extensive research into tokenization.

In an interview published on Friday, June 28, in French newspaper Les Echos, Solomon said that it had to be assumed "that all major financial institutions around the world are looking at the potential of tokenization, stable wedge and frictionless payments".

More Institutional Oomph for Crypto

Solomon's comments helped add weight to the seriousness with which institutional players are now approaching the subject of cryptocurrency and digital assets.

JPMorgan Chase announced back in February that it was to launch its own cryptocurrency: a stablecoin called JPM Coin.

Banks and other international investment companies move trillions of dollars around the world daily and have hundreds of staff in middle and back offices taking care of the financing and settlement of transactions between clients. The costs are enormous and banks are looking into ways of streamlining some of their operations.

Wire transfers can be slow and clumsy, and financial institutions have long been seeking more efficient ways of conducting transactions.

Transforming Payments

Solomon appeared in his interview to be very in tune with the fast-paced developments in financial technology and the potential for crypto assets and blockchain to further transform the payments environment.

I find the principle interesting. We do extensive research on the concept of "tokenization", the potential of which we believe, and which designates the creation through the blockchain of a stable digital currency based on a basket of real currencies that can move money across borders and without friction. This is direction in which the payment system will go.

Facebook, while not a major financial institution, has the corporate clout and has sought out the necessary financial partners to launch Libra, its own cryptocurrency, which it hopes will go live in 2020. 

The Libra Effect

Some central bankers and regulators fear that given Facebook's billions of users and the partnership of companies such as Visa and Mastercard, Libra could threaten sovereign currencies if it becomes massively popular.

Solomon said he thought banks and other financial institutions may have to raise their game to accommodate new entrants such as Facebook, but did not think the big techs would ever replace them.

I do not think banks will disappear because of that. Admittedly, they will have to evolve, because the trades linked to the payment flows will become less profitable. But there are many other reasons why banks must remain innovative, otherwise they will disappear.

He felt, however, that the more likely scenario would be for big tech players would "try to steal partnerships" with banks rather than become banks themselves. Indeed, Apple partners with Goldman Sachs in its credit card business.