Some of the biggest names in banking are trying to develop a cryptocurrency that will serve as an alternative to bitcoin.
UBS Group (NYSE: UBS), Banco Santander (NYSE: SAN), Bank of New York Mellon (NYSE: BK) and Deutsche Bank (NYSE: DB) have joined with technology firms Icap and Clearmatics to create the Utility Settlement Coin (USC), Crowd Fund Insider reported. The USC will be a cryptocurrency like bitcoin that is backed by real cash held by banks.
The idea is to create a digital medium of exchange to facilitate trading between banks and others. The USC could be used for payment like bitcoin or traded on exchanges. Yet it would theoretically have more value because it would be backed by assets held by banks.
Like bitcoin USC will be traded and utilize distributed ledger technology for security. The hope is to create a new kind of digital cash that can be used by banks or central banks. One use of the USC will be to serve as a cryptocurrency for smaller nations.
Why Banks want their Own Cryptocurrency
Another will be to participate in international cryptocurrency trading markets like the one that CME Group Inc. hopes to set up for bitcoin. Creating a cryptocurrency would also give the banks more control over this kind of payment; they currently have little or no control over bitcoin.
Another reason why smaller banks are creating the USC is to counter the possibility of a cryptocurrency backed by one the monster US banks such as JPMorgan Chase (NYSE: JPM) which is investing heavily in encryption technology and payment solutions. Such a currency would give the monster banks with their vast resources a massive edge over smaller rivals.
The banks also fear cryptocurrencies like bitcoin and ethereum which are the creations of technology entrepreneurs. Those rebels and wildcatters and the large investors that back them have been in the driver's seat of the bitcoin revolution.
The banks want to take back over because they fear losing control of the finance industry. That is why both private banks and central banks are investing so heavily in FinTech right now and moving aggressively to bring out their own digital currencies.
What remains to be seen is if financial regulators, the general public and politicians will tolerate such experiments. Any attempt to trigger such a paradigm shift in the financial markets without popular support might lead to a nasty backlash.
Particularly in an era when popular frustration with the financial industry and the elites that operate it has already produced both Brexit and Donald Trump. Any fear that banks are trying to divorce themselves from paper currency and the national economy might doom the cryptocurrency experiment.
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