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JP Morgan is launching the first US bank-backed cryptocurrency to revolutionize the payments industry.

Engineers at JPMorgan Chase have invented the “JPM Coin,” a digital token that will be used to settle transactions between clients of the bank’s wholesale payments business instantaneously.
Only a small percentage of payments will be sent using the cryptocurrency at start, but the pilot marks the first time a major U.S. bank has used a digital token in the real world.
While Jamie Dimon of J.P. Morgan has called bitcoin a “fraud,” the bank’s CEO and executives have constantly stated that blockchain and regulated digital currencies have promise.

J.P. Morgan Chase has released the first cryptocurrency established by a major American bank.

In its vast wholesale payments division, the lender moves more than $6 trillion around the world every day for firms. A small fraction of that will happen in trials starting in a few months, using something dubbed “JPM Coin,” a digital token designed by programmers at the New York-based bank to instantaneously settle payments between clients.

J.P. Morgan is preparing for a future in which the blockchain replaces elements of the key underpinnings of global capitalism, such as cross-border payments and corporate loan issuance. That’s the database technology whose initial use, bitcoin, made it famous. But, rather than depending on antiquated technology like wire transfers, the bank required a mechanism to transmit money at the dizzying speed that those smart contracts closed in order for that future to come true.

“Anything that now exists in the world, when it gets into the blockchain, this would be the payment leg for that transaction,” Umar Farooq, the head of J.P. Morgan’s blockchain programs, explained. “The applications are truly limitless; anything involving a distributed ledger and organizations or institutions can benefit from this.”

For some, J.P. Morgan’s new currency may come as a surprise for a technology that sprang from the ashes of the financial crisis and was intended to upend the banking system.

Though digital currency investors may see the news that a big banking institution is launching its own cryptocurrency as a positive sign for the asset class, individual investors are unlikely to get their hands on a JPM Coin. Unlike bitcoin, the tokens are only available to J.P. Morgan’s large institutional clients who have passed regulatory checks, such as businesses, banks, and broker-dealers.

There are also significant distinctions between J.P. Morgan’s cryptocurrency and bitcoin, which J.P. Morgan CEO Jamie Dimon has slammed as a scam that would harm investors. (To be clear, he and his executives have consistently stated that blockchain technology, as well as regulated digital currencies, show promise.)

Each JPM Coin is redeemable for a single US dollar, ensuring that its value remains consistent, akin to so-called stablecoins. Clients will receive the coins after depositing dollars with the bank; once the tokens have been used for a payment or security purchase on the blockchain, the bank will destroy the coins and return the same amount of dollars to the clients.

Settlement in real time
According to Farooq, the JPM Coin has three early applications.

The first is for major business clients to make international payments, which are today routinely made via wire transfers between financial institutions utilizing decades-old networks like Swift. Payments will settle in real time, at any time of day, rather than requiring more than a day to settle since institutions have cut-off times for transactions and countries operate on various systems, he said.

The second category is for financial transactions. In April, J.P. Morgan conducted a blockchain-based debt issuance test, simulating a $150 million certificate of deposit for a Canadian bank. Institutional investors can utilize the J.P. Morgan token to buy the issuance instead of using wires, which results in a time delay between the transaction being settled and being paid for it.

The final application would be for large firms that employ J.P Morgan’s treasury services to replace funds held in subsidiaries around the world. Unknown to retail customers, the company manages a major portion of the world’s regulated money flows for firms ranging from Honeywell International to Facebook, transferring funds for things like employee and supplier payments. Last year, it brought in $9 billion in revenue for the bank.

“In a multinational corporation, money sloshes across the world,” Farooq explained. “Is there a way to ensure that a subsidiary’s cash can be represented on the balance sheet without having to wire it to the unit?” They’ll be able to consolidate their funds and earn better rates as a result.”

If the usage of blockchain for payments catches on, the JPM Coin might be utilized for payments on internet-connected gadgets in the future, according to Farooq.

Even if rival banks build their own coins, J.P Morgan is wagering that its first-mover position and substantial market share in corporate payments — it finances 80 percent of the Fortune 500 — will give its technology a strong chance of adoption.

“We have pretty much every significant corporation as a client, as well as the majority of the world’s top banks,” Farooq said. “Even if this was limited to institutional JPM clients, it shouldn’t hold us back.”

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