Why banks want their own digital currency?

A little about digital currency

Since 19th July, 2010, we have seen bitcoin go from $USD 0.09 a coin to $USD 4950.72 on 1st September, 2017. which means a 5,500,800 percent rise in value. And what is interesting is bitcoin is a digital currency. Unlike PayPal or Visa, there is no centralised unit running it. There is no CEO as well as no issuing authority. Transactions are secured by other people in the network.

How does it work?

The answer is blockchain. Whenever a bitcoin is traded, it’s verified as well as publically recorded on the blockchain. Blockchain is a distributed database where everyone has a copy as well as it is updated continually in order to ensure that no single person can corrupt the information. Hence, when you trade bitcoin, everyone knows that you did too as well as you will not be able to take it back unless the entire blockchain agrees with you.

Why would a bank want their own digital currency?

When banks transact, they make agreements, also called as settlement (like a set amount of money for a specific stock, say $2,000 for Amazon) and agreements are settled a few days later.

So the problem is speed as well as the risk the other party doesn’t pay. Hence Barclays, Canadian Imperial Bank of Commerce, Credit Suisse, MUFG, HSBC,  as well as State Street want to create the USC or utility settlement coin which was created by UBS in order to make financial markets more efficient.

Why banks want to be more efficient in settlement?

This is because it will be freeing up billions of dollars in capital that’s tied up supporting trades. The USC or utility settlement coin is basically designed to have the same value as cash , unlike fiat cryptocurrencies like Bitcoin (1 USC AUD will be equal to 1 physical AUD).

Settlement systems cost the financial industry $65–80 billion every year . A blockchain based settlement system can perform settlements in few seconds, not days.