A MUFG Bank signboard in Tokyo, Japan April 3, 2018. Photo: Reuters / Toru Hanai
Japan’s MUFG Bank and Sumitomo Mitsui Banking Corp, along with 14 other global banks, have reportedly invested $63 million to establish Fnality. Photo: Reuters

Banks from Japan are leading the charge in the development of a digital currency that can be used globally and seems to be aimed at challenging the growth and popularity of cryptocurrencies.

The blockchain-based digital coin will facilitate faster and more cost effective cross border settlements and Japan’s MUFG Bank and Sumitomo Mitsui Banking Corp have reportedly contributed several million to the project, known as Fnality International.

A group of 14 banks which includes UBS, Credit Suisse, Barclays of Europe and US-based State Street, has reportedly collectively invested $63 million to establish Fnality.

The Nikkei Asian Review reported that Fnality, based in London, will establish accounts at participating banks and issue utility settlement coins (USCs). These will operate like stablecoins and will be pegged to their equivalent fiat currency.

In a system similar to that currently operated by companies such as UK-based TransferWise, Fnality transfers funds to a central bank when a client requests an international transfer. The central bank then issues the USCs which, in turn, are sent to the central bank in the recipient’s country. There, the funds are converted back into local currency, thus saving on forex fluctuations. The report added that the system will initially work with US dollars, Euros, Pounds, Yen and Canadian dollars and will launch in 2020.

These tokens will be backed by the banks, avoiding the volatility that cryptocurrencies currently suffer from. However, this also means that, unlike crypto, USCs will be highly centralized, controlled and issued by the banks, not the users. There are also likely to be associated fees to use the service as well as government restrictions on amounts transferred.

San Francisco-based Ripple already has a similar system in place, and with more than 100 partners in the financial sector, is one of the industry leaders for cross border transactions. The Fnality launch is another indication that state-controlled central banks still aim to retain a tight grip on global money flow.

Cryptocurrency, in contrast, is the complete antithesis of the banking system as it is peer to peer, decentralized, and, in theory, immutable. The rise in Bitcoin’s popularity in recent years is a signal that many people want to be in charge of their money and not hand control to the banks.

Co-founder and Partner at Morgan Creek Digital and Bitcoin advocate Anthony Pompliano acknowledged this premise in a tweet that was dismissive of Fnality’s efforts. “The banks are trying to build their own bitcoin called Utility Settlement Coin (USC),” wrote Pompliano. “14 firms. $63 million invested. 4 years of development. Nothing to show for it … shocking. Long Bitcoin, Short the Bankers!”

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