UBS leads a team comprising four world’s most powerful banks which are now focused on delivering a system that will use blockchain technology to allow financial markets to complete financial transactions more quickly and smoothly.
UBS has created a system known as “Utility Settlement Coin” (USC). The system is not a new decentralized digital currency such as bitcoin, but rather a digital cash counterpart of all major currencies backed by central banks.
The USC will be converted into a corresponding currency in accordance with a bank deposit, which will make it entirely backed by cash assets at a central bank.
UBS assured that using USC would be equivalent to using the real corresponding currency.
This project is predicted to revolutionise the entire settlement system used by banks. The current system operates in such a way that it might take a few days to finalise and which sets the financial industry back $65-$80 billion per year.
The first time the Swiss bank introduced this idea was in September 2015 with London-based blockchain company Clearmatics and has been joined on the project by BNY Mellon, Santander and Deutsche Bank.
Blockchain is viewed as a meddle-proof shared ledger which automatically processes and settles transactions with the assistance of computer algorithms, meaning that there is no need for manual processing. Because third-party verification is not needed, the system makes transactions faster and simpler to audit.
Other equivalents of USC are currently being developed by many other companies, such as, for instance, SETL. Some banks are devising their own projects, but the fact is this is the first attempt of big banks to collaborate in order to enhance a digital cash settlement system.
Financial regulatory authorities are now trying to evaluate the implications of the system. The aim is to figure out whether the system can meet governance, technical, and legal demands.
This month, the World Economic Forum reported that over ninety central banks are intending to implement blockchain. It is also mentioned in the report that by 2017, 80% of all global commercial banks will have initiated projects using the technology.
Edward Budd, a Deutsche Bank Global Transaction Banking Chief Digital Officer, said that the implementation of USC has become a highly discussed topic in the industry of the financial service. However, “It raises questions, and possibilities, over a fundamental market structure principle: who can have access to central bank money and how”.