J.P. Morgan Chase is the first major U.S. bank to adopt cryptocurrency. It will test the program on its institutional clients.
J.P. Morgan Chase has become the first major U.S. bank to roll out its own cryptocurrency.
The bank announced on Feb. 14 it will trial-run its digital token, JPM Coin, which will enable clients to settle payments immediately.
When Chase begins testing these international payments, it will mark one of the banking world’s first forays into using cryptocurrency.
Previously, the banking industry has viewed this asset class as too speculative, and as recently as 2018, Chase banned its credit card customers from buying bitcoin.
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Although Chase CEO Jamie Dimon has publicly slammed bitcoin, he’s hopeful regarding the usage of blockchain and other regulated digital currencies.
Retailers, however, might never get to use JPM Coin – only the bank’s institutional clients, which have gone through regulatory checks, can currently use it.
How it works
The technology is simple: A client will send someone money over the blockchain, and JPM coins “are transferred and instantaneously redeemed for the equivalent amount of U.S. dollars.” This process will reduce the average settlement time, which can currently take more than a day.
Each JPM Coin equals one U.S. dollar, and clients can use the coin to make payments or buy securities on the blockchain. Once the transaction is complete, Chase destroys the coins.
J.P. Morgan plans to extend its coin to other major currencies going forward.
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JPM Coin’s applications
Umar Farooq, head of digital treasury services and blockchain at J.P. Morgan, told CNBC the JPM Coin will feature three early applications.
One will execute the bank’s heavy-hitter corporate clients’ international payments in real time. Until now, the bank has used wire transfers – which sometimes take more than one day to settle due to transaction cut-off times – to handle these payments.
Another will be earmarked for instant securities transactions settlements. The third will serve corporations that employ the bank’s treasury services business to substitute their global subsidiaries’ dollars, a business that made Chase $9 billion in 2018.
“Money sloshes back and forth all over the world in a large enterprise,” Farooq said. “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.”
Farooq said clients might be able to use the JPM Coin for payments on internet-connected devices if blockchain gains traction in that arena.
J.P Morgan is also banking on this move to get other banks adopting cryptocurrency.
“Pretty much every big corporation is our client, and most of the major banks in the world are, too,” Farooq said. “Even if this was limited to JPM clients at the institutional level, it shouldn’t hold us back.”