The IBM 'World Wide' payment platform will use Stellar Lumens and Stronghold 'stablecoins'. Photo: iStock

Multinational computing giant IBM has launched a stablecoin-based Blockchain World Wire global payments network that aims to allow financial institutions to carry out ‘realtime’ cross border payments, foreign exchange transactions and remittances.

“We’ve created a new type of payment network designed to accelerate remittances and transform cross-border payments to facilitate the movement of money in countries that need it most,” said Marie Wieck, General Manager, IBM Blockchain, via a company announcement.

The payment network, featuring what is described by the computer giant as a “straight-through model”, will trade using Stellar technology and the Stronghold USD cryptocurrency. IBM is already in collaboration with both companies.

Stronghold USD is a so-called “stablecoin“. The disastrous year experienced by the majority of crypto investors in 2018 had many looking for instruments with less risk; this led to the rise of the stablecoin. These essentially fall into three categories. Fiat-collateralized stablecoins are backed by an existing currency such as the dollar. Crypto-collateralized stablecoins are backed via other decentralized crypto-assets. And non-collateralized ones use an algorithm to change supply volume and have no backing apart from “perceived” future value. Confused?

The least complicated, and most popular of the stablecoin models is the one pegged to a fiat currency. More often than not, the pegged currency is the US dollar and this supposedly allows the platform to maintain a stable value and therefore be less volatile than other cryptocurrencies.

The most notorious of these USD-backed “coins” is  probably Tether USDT. It is closely connected to the Bitfinex exchange and has been plagued by controversy. Many observers, including cybersecurity expert Tony Arcieri, argue that this shows stablecoins to be an opaque scam, primarily used as a vehicle to dump profits while other cryptocurrencies are in a down cycle.

Stablecoins have been a means to “effectively counterfeit hundreds of millions of dollars of perceived value, which are being immediately reinvested into Bitcoin to keep it from collapsing,” Arcieri wrote.

But this landscape appears to be changing. The Stronghold currency also fits the US-backed category and the concept is being used by many others giants from the world of traditional finance, including JP Morgan, who are set to launch their ‘JPM Coin’, and Japan’s Mizuho Bank, with the ‘J Coin’.

JP Morgan’s JPM Coin will be pegged 1:1 to the dollar and circulate between the bank and clients. Meanwhile, Mizuho Bank’s J Coin is redeemable 1:1 for 1 Japanese Yen and is targeted to general consumers for retail payments.

“The stablecoins developed by these two banks are essentially blockchain settlement networks,” said exchange OKEx in a recent blog, “which will grow in value when more financial institutions and clients join the network.” Stablecoins, say OKEx, “might as well be considered ‘bank acceptance bills’ on an inter-bank blockchain.” 

For the World Wire platform, IBM says it has six international banking partners that include Banco Bradesco from Brazil, Bank Busan from South Korea, and Rizal Commercial Banking Corporation (RCBC) from the Philippines. All international partners are reportedly planning to issue their own stablecoins, which, says IBM, will further add Euro, Indonesian Rupiah, Philippine Peso, Korean Won and Brazilian Real stablecoins to its global network.

IBM also says the World Wire platform has already has enabled payment locations in 72 countries, and has what it calls “44 banking endpoints” and is “actively growing the network with additional financial institutions globally.”  World Wire, that is reportedly now in “limited production”, will, says IBM, bring a “simplified approach” to payment reconciliation.

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