JP Morgan is set to become the first US bank to launch its own cryptocurrency as it looks to find a new way of settling payments between its global clients.
The JPM Coin is a digital currency designed to represent the US dollar. It follows a recent trend of so-called stablecoins, which aim to minimise the volatility in price of cryptocurrencies by pegging the digital assets to a fiat currency.
Cryptocurrencies faced a rout in 2018, with around $700billion being wiped off the market’s value, but the move into the sector would mark the biggest yet by an institutional lender.
Operating on the blockchain, a distributed ledger technology underpinning cryptocurrency payments, JP Morgan’s cryptocurrency will look to enable the instantaneous transfer of payments between institutional accounts.
The bank stresses that that JPM Coin “isn’t money per se”, but will instead help facilitate the transfer of value over the blockchain.
It makes a shift in attitude from the bank towards cryptocurrencies. Chief executive Jamie Dimon previously dismissing Bitcoin, the world’s most popular cryptocurrency with a market valuation of $63.5billion, as a “fraud”, adding that he would fire any employee caught trading it. He has since regretted the comments.
The bank claims that it has always believed in the potential of blockchain technology and that it is supportive of cryptocurrencies “as long as they are properly controlled and regulated”.
“Ultimately, we believe that JPM Coin can yield significant benefits for blockchain applications by reducing clients’ counterparty and settlement risk, decreasing capital requirements and enabling instant value transfer,” said Umar Farooq, head of digital treasury services and blockchain at the investment bank.
The JPM Coin is currently at a prototype stage in its development and will only facilitate a small proportion of the bank’s wholesale payments business, which currently moves around $6billion daily.
Trials for a prototype are set to start in the coming months, during which period JP Morgan will consult with regulators.