Bank to Basics: USC Project Seeks to Disrupt Traditional Wholesale Banking

The momentum for USC has been growing since 2015, when the initiative was launched by financial giants UBS, BNY Mellon, NEX, Santander and Deutsche Bank, along with blockchain startup Clearmatics.

The essence of the USC project is to create blockchain-based cryptocurrencies to make it easier for international banks to settle various transactions between each other.

"Perhaps we might expect a CDBC timeline of 5-10 years, maybe even longer. We don't want to wait that long to realise the benefits digital currencies can bring to banking, so we are looking to launch USC in 2018. It is essentially a stepping stone to a time when central banks might issue their own digital currencies."

As per USC's scheme, banks seeking to carry out international transactions transfer the required amount to the country's central bank.

Laura Noonan, United States banking editor for the Financial Times, gave her take on the latest USC developments on the paper's June 4 edition of the "Banking Weekly" podcast.

Lee Braine, the chief technology office at Barclays, told the Financial Times that, although the bank's confidence in USC had grown "Meaningfully," he expected the impact to be gradual, stating that "This ultimately is a market transformation over time."

Cowen Washington Research Group foresees little resistance for USC in the U.S., stating that banking agencies such as the Federal Reserve are likely to support the project as it seeks to simplify the complex, cross-border transaction process.

"In short: central bank reserves are held in a segregated account and tokenized so that they can be used for settling transactions. this is not commercial bank money."

"Even a deposit made by companies into a commercial bank account ultimately bears the credit risk of that specific bank: it could collapse, force a haircut onto depositors, freeze assets at the request of the court, decide to shut down accounts, and at least a handful of other issues. We all witnessed the consequences of these risks first hand with the sorrowful collapse of retail and commercial banks during 2008 - 2009.".

The token, dubbed "JPM Coin," seems set to provide USC with some competition, as the multinational bank reported that its coin will focus on improving settlement efficiency.