In reviewing and considering what this announcement really amounts to, one has to pause and ask if one truly understands the details of what has been developed. This article, appearing in Bloomberg, is a bit light on specifics, which one would also expect based on the very high level and rather mundane statements arising from the announcement. As an example,
“Many of our clients move money in different ways and they’re looking for a more real-time way to move value around,” Umar Farooq, head of digital treasury services and blockchain, said in an interview.’ The bank started developing JPM Coin about a year ago in response to client demand and plans to start testing out possible uses with a small number of its institutional customers in the coming months, Farooq said. He declined to name the interested companies.’
No revelations there, since corporate clients will always seek better, and certainly faster if it does not cost them much of anything. So what do we know? JPMorgan has announced that is has a digital coin designed to use blockchain as a means of value transfer. The coin itself is not the equivalent of the well-known cryptocurrencies which a) have a floating market value, whereas JP Coin is pegged to the dollar (think gold standard and the end of Bretton Woods) and b) ones like Bitcoin are decentralized and in an open market, whereas JP Coin as announced is not, since only available to certain clients. We don’t have clear details on the actual use cases contemplated (several mentioned in other releases; x border, corporate cash movements, securities deals). Certainly internal transfers of value using distributed ledger tech might be quicker and cheaper than perhaps a series of steps involving x systems and wires into and out of reserve accounts. The article goes on to chat about how SWIFT may be impacted by JP Coin (and the like).
SWIFT, the air-traffic control system for sending money around the world, has been working on a plan to make overseas transfers more efficient though a campaign known as the global payments innovation initiative. But banks still sometimes run into trouble clearing cross-border payments in real time, Farooq said. JPM Coin could eliminate that problem by allowing instantaneous value transfer, he said.’
So once you start talking cross border, that would also interest a Ripple we suppose, which connects about 200 banks and helps transfer value in real-time through blockchain, although not generally utilizing XRP (as we understand it anyway), since that adds some volatile currency risk and perhaps regulatory scrutiny. JPMorgan Chase has lots of corporate clients around the world and has many bank customers as well, so has distribution heft. One thing that the article points out is the New York state-chartered Signature Bank ($46 billion in assets) already has such a coin.
‘New York-based Signature Bank rolled out a digital coin for real-time payments earlier this year, and scores of its institutional clients have started using it to send money to each other, according to Chief Executive Officer Joseph DePaolo. The bank, which had about $46 billion in assets as of Sept. 30, has seen daily volume in the tens of millions of dollars since the coin’s debut, he said….Compared with JPM Coin, “there’s no difference other than we’re up and running and we already have regulatory approval,” DePaolo said. “They’re trying to do the same thing we are.”
Combining this announcement with a prior one about organizational changes involving consolidation of Trade and merchant services gives one the impression that it is simply another step by JPMC in the direction of global B2B services and payments flexibility with improved tech. One would suspect that regulators are fine with it, and keeps a focus on market improvement. We’ll keep you posted as we learn more.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group