The news is out, a major international bank is backing – and releasing – its own cryptocurrency. Well, sort of.
JPMorgan Chase & Co. (JPM – Research Report) will be starting trials, over the next few months, of the JPM Coin – a blockchain-based trading token backed by US dollar deposits. The announcement came on February 14. The new coin will be used to facilitate money transfers between the bank’s customers.
This move into the cryptocurrency world is definitely something of a surprise, as JPMorgan’s CEO, Jamie Dimon famously called Bitcoin (BTC) a “fraud” and “stupid” back in 2017. In fact, he said, “I wouldn’t put this high in the category of ‘important things in the world.’” So, what is his bank – one of the world’s major financial institutions – doing, flying the face of the CEO’s conviction?
The answer lies in the technology. Dimon obviously has little use for Bitcoin and other cryptos – his bank has banned credit card cryptocurrency purchases by customers – but he does like the blockchain. “The blockchain is real,” he told Fox Business. “You can have crypto yen and dollars and stuff like that.”
Clearly, Dimon at the very least sees blockchain as a viable mode for transmission of traditional currencies. As a JPMorgan spokesperson put it, “Jamie has been more consistent than people give him credit for. He’s always separated cryptocurrency from the underlying value and the use of blockchain.”
Dimon’s and his bank’s stance puts the JPM Coin into better perspective. The new coin will be a non-fluctuating trading token, tied to and redeemable in US dollars deposited by the token’s users. It’s a concept similar to stablecoins, but quite identical.
What Sets JPM Coin Apart
The main difference lies in the nature of the blockchain behind the token. Where ‘traditional’ blockchain is open to the public, JPM Coin will be backed by a closed system, accessible to the bank’s officers and customers, by permission only. It’s not a fully centralized system, but neither is it the open-source free-for-all that have made cryptos notorious.
Another difference lies in the new coin’s use. Where cryptos like Bitcoin are intended to circulate, the JPM Coin is intended to facilitate circulation; each token is redeemable in US dollars, and after it is used in a transfer transaction and redeemed at the other end, the token is destroyed by the bank. JPM Coin is not a freely circulation alternative currency.
In short, JPM Coin will be an internal blockchain system for use by JPMorgan Chase bank and its customers, making available the speed and security of blockchain digital currency transfers. It seems, in fact, like a hard swipe at the existing SWIFT system, and the attractions of a fast, international currency transfer should be immediately apparent to anyone who has spent time waiting for SWIFT transfers to post to an account. That alone should generate substantial interest from JPMorgan’s institutional customers.
Who is Line to Use JPM Coin
Umar Farooq, head of blockchain projects at JPMorgan Chase, says of the new trading token, “Anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction. The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.”
Specifically, JPMorgan sees three sets of institutional clients for the new digital coin:
- Large corporate clients, with a need for international payments. These clients currently use the SWIFT system, mainly, and will benefit from the speed of blockchain;
- International subsidiaries of large corporations, with a need to move money in large volumes around the world. JPMorgan’s treasury services is a major player in the world’s regulated money flows;
- Institutional securities traders, looking for instant settlements rather than dealing with the current time delay between settling and being paid for a transaction.
The new JPM Coin is not designed for the bank’s retail customers. Rather, it is intended as a tool for institutional use, to smooth out and speed up the bank’s largest money movements.
Staying in Line with Regulation
JPMorgan spokesmen have been clear that the bank’s new blockchain token will be fully complaint with international currency regulation. In a statement, the bank said, “We have always believed in the potential of blockchain technology and we are supportive of cryptocurrencies as long as they are properly controlled and regulated. As a globally regulated bank, we believe we have a unique opportunity to develop the capability in a responsible way with the oversight of our regulators.”
This will include tracking all information required by governmental regulators, and ensuring that all clients using JPM’s blockchain are approved, and have passed money-laundering clearances.
We’ll leave the last word to the bank’s Farooq. “There is a possibility in the future of a blockchain that is private, except from the regulator. There are various ways to make the regulatory regimes across the world stronger over time.”
Author: Michael Marcus