Big Banks announce fiat-pegged currency for settlements

Ripple’s XRP Token is about to have some serious competition as Banking giants in the U.S, Japan, and across Europe have created a new consortium that makes use of cryptocurrency and Blockchain for cross-border transfers.

What are these banks upto?

According to the Nikkei Asian Review, Fnality International a product of the collaboration of large banking corporations in Japan and their counterparts in the U.S. and Europe will create a cross-border settlement framework that will use a fiat-pegged cryptocurrency.

Banking giants like MUFG and Sumitomo have invested around $63 million on the startup and they will have to create accounts in each of the banks before issuing their new USC’s (Utility Settlement Coins) or let’s say fiat pegged “Cryptocurrencies”. Ultimate Secure Cash (USC) – the 1,680th-ranked cryptocurrency based on CoinMarketCap rankings, are surely not too pleased about the name clash. It also is awfully similar to the concept of JPM coin from JPMorgan but with a broader focus rather than just internal settlements.

These USCs have a one-to-one ratio to the underlying fiat currencies. Thus, for a transfer with the sender in Japan and Receive in the United States, the Japanese bank will have to deposit the transaction amount in yen to Japan’s central bank. Following the initiation of the transaction, Fnality issues an equivalent number of USC’s to the receiving bank in the United States where the conversion to U.S. dollars takes place and then it is sent to the recipient’s bank account.

Based on the reports of the Wall Street Journal (WSJ), this system is supposed to drastically reduces the cost of international payments by eliminating third-party intermediaries however the presence of Fnality in the middle makes this questionable.

USCs will make use of blockchain and its associated distributed ledger technology to keep track of the transaction records and to improve the integrity of these records. The system will support all major currencies like U.S. dollars, euros, pounds, yen and Canadian dollars and can help reduce the delay of Transmissions from a full day or even longer to a much shorter time frame.

WSJ, Hyder Jaffrey, the investment strategy chief at UBS – one of the banking firms, said:

“You remove settlement risk, the counterparty risk, the market risk. All of those risks add up to costs and inefficiencies in the marketplace.”

UBS have been involved in Cryptocurrency and Blockchain related technology since early 2015. Reports state that Fnality’s USC settlement platform will launch sometime in 2020.

Ripple vs Fnality

Fnality’s USC is a huge competitor for Ripple. Their new Consortium blows Ripple’s XRP out of the water and targets the same use case which XRP has been trying to take over. Moreover, it is backed by U.S.-based State Street; Japan’s MUFG Bank and Sumitomo Mitsui Banking Corp.; UBS, Credit Suisse and Barclays of Europe.

Banking institutions will most likely prefer to use their USC’s than XRP in any of the current Ripple cross-border payment bundles or any other cryptocurrency that tries to fulfill the same purpose. Though, anyone who truly understands the essence of Cryptocurrencies and blockchain will never back an infrastructure like Fnality and the USC which can’t even be referred to as pure-cryptocurrency. However, the main advantage it offers is that it is backed by central banks and its value will not be as volatile as that of normal Cryptocurrencies, making them more reliable in day to day transactions.

So in some ways, Ripple is completely safe as USC’s are more of a marketing gimmick rather than being a true cryptocurrency. The main advantage of Cryptocurrencies and Blockchain is their decentralized nature allowing transparent transactions without the involvement of third parties. But in this case, Fnatic will be a middleman which doesn’t ensure fully centralized behavior. However, some still might argue that a fully decentralized platform is not really practical in today’s world.

It is safe to say that regardless of the success of USC’s there will always be a place for Ripple’s XRP and other real Cryptocurrencies in the heart of Crypto-Purists.

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