The lender will begin trials of its new digital token ’JPM Coin’ over the next few months, which was created by engineers at the New York-based bank to instantly settle payments between clients. When the testing of international payments is complete, it will become one of the first real-world applications for cryptocurrency in banking. The latest breakthrough saw the company’s share price surge nearly half-a-percent to $103.09 in the New York Stock Exchange.
The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this
The bank explained it needed to find a way of transferring money at increasingly rapid speeds, as opposed to relying on an old technology like wire transfers.
Umar Farooq, head of JP Morgan’s blockchain projects, told CNBC: “The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.”
“So, anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction.”
The news will however not encourage retail investors because unlike bitcoin, only big institutional clients of JP Morgan who have undergone regulatory checks, such as corporations, banks and broker-dealers, can use the tokens.
JP Morgan will become the first major bank to roll out its own cryptocurrency
Each JPM Coin is redeemable for a single US dollar, so its value is unlikely to fluctuate, with business customers provided with the coins after depositing cash at the bank.
When the tokens are used for a payment or security purchase on the blockchain, JP Morgan will destroy the coins and give customers back a commensurate number of dollars.
Mr Farooq said there are three early applications for JPM Coin.
The first is for international payments for major corporate customers, and instead of often taking more than a day to settle because institutions have cut-off times for transactions and countries use different systems, payments will settle in real time that same day.
The second is for security transactions, with JP Morgan having already tested a debt issuance on the blockchain through the creation of a virtual simulation of a $150million certificate of deposit for an unnamed Canadian bank.
JP Morgan said the applications for its new cryptocurrency are ‘frankly quite endless’
Businesses traditionally using wires to buy the issuance have seen a time gap between settling the transaction and it being paid for, but they will be able to use the JP Coin for instant payments.
The final use for the cryptocurrency is for multinational conglomerates who use the bank’s treasury services business to replace dollars they hold in subsidiaries elsewhere.
Mr Farroq said: “Money sloshes back and forth all over the world in a large enterprise.
“Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it.”
Long-term, the bank’s blockchain projects boss added JPM Coin could be used for payments on wireless devices if that becomes more mainstream.
Jamie Dimon backtracked on earlier criticism of bitcoin
JP Morgan is confident its ability to bank 80 percent of companies in the Fortune 500 will provide the boost its technology needs for mass adoption.
Mr Farooq added: “Pretty much every big corporation is our client, and most of the major banks in the world are, too.
“Even if this was limited to JPM clients at the institutional level, it shouldn’t hold us back.”
This is a major breakthrough in the future of cryptocurrency, which has so far been mostly shunned by the global banking industry who saw it as a risk not worth taking, while its price rate plummeted throughout last year.
Last year, JP Morgan was among a group of lenders that banned the purchase of bitcoins by its credit card customers.
Goldman Sachs also reportedly binned plans to create a bitcoin trading desk after spending months exploring the idea.
Even JP Morgan’s own chief executive Jamie Dimon, who has consistently said blockchain holds promise, rejected bitcoin as a “fraud” when speaking at a conference in September, adding: “It’s just not a real thing, eventually it will be closed.”
But in January, he backtracked on that statement, claiming: “The blockchain is real.
The bitcoin was always to me what the governments are going to feel about bitcoin when it gets really big, and I just have a different opinion than other people.”