Banking News

JP Morgan plans JPM Coin bond pilot later this year

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Today JP Morgan told Bloomberg that the company plans to start piloting its JPM Coin later in the year, subject to regulatory approval.

As previously reported, the primary purpose of the coin is to enable instant settlement for blockchain transactions. “We believe that a lot of securities over time, in five to 20 years, will increasingly become digital or get tokenized,” Umar Farooq, JP Morgan’s head of digital treasury services and blockchain told Bloomberg.

Hence the coin will enable institutional clients to exchange tokens for coins in Delivery versus Payment transactions. Thereby any counterparty risk is transferred to JP Morgan. Bonds is one area that JP Morgan has previously run several blockchain pilots using its Quorum blockchain protocol.

JPM Coin serves a similar purpose to Fnality, which runs the Utility Settlement Coin (USC). Fnality plans to launch USC next year. And while the goal is similar, the details are different. Initially, JPM Coin will only be US Dollars, compared to USC’s plans for five currencies. The money backing USC is deposited at a central bank. But central bank money may potentially be opened up to more players. Plus there are 14 major banks behind the Fnality project.

However, there has been a lot of discussion about how current systems use intraday netting of payments. This means less cash is needed at any one time in comparison to the instant settlement enabled by JPM Coin and USC. A key benefit of instant settlement – and hence JPM Coin and USC – is the reduction in counterparty risks which could remove the need for centralised counterparties (CCPs). If netting “wins” then JPM Coin and USC will just be used as cash on ledger delayed payments. Still useful, but not as compelling.

The DTCC highlighted the netting advantages. And participants in the Australian Securities Exchange‘s new blockchain CHESS settlement system demanded the ability to opt out of instant payment. Additionally, Accenture raised the same point when testing Central Bank Digital Currencies for Canada’s Project Jasper.

Both JPM Coin and Fnality likely have a counter-argument to netting. But right now they are not publicly communicating what the solution is.

We asked the question, and the Fnality response was: “There has long been a debate between the relative merits of RTGS, Real Time Gross Settlement, and netting. The Fnality platform will accommodate both. Which option is something each business platform must decide.”


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