What's going on?
On Thursday, it was announced that six more banks, including Barclays and Credit Suisse, have joined the UBS-led effort to create a new digital currency based on blockchain (the technology behind bitcoin). It’s all about revolutionizing the way stocks, bonds and other investments are traded!
What does this mean?
When banks transact with each other, they make agreements (for example, they decide to exchange a set amount of cash for a specific stock) and these agreements are settled a few days later (the payment is actually made and the new owner is given the stock). This brings up two problems: speed (it takes a few days) and the risk that one side doesn’t hold up its end of the bargain (e.g. deliver the cash). Blockchain technology can potentially solve both these problems, allowing fast and secure processing of transactions.
The Utility Settlement Coin (USC) is intended to be a digital currency that has the same value as cash (i.e. 1 USC euro would equal 1 physical euro) – unlike bitcoin. The idea is that settling transactions in this digital currency would cost less (settlement currently costs the financial industry about $65-$80 billion a year) and be much faster (it would take seconds rather than days), which reduces the risk of one party flaking between agreement and settlement.
Why should I care?
The bigger picture: Big banks are moving ahead with blockchain technologies. (tweet this)
The financial industry, from central banks to investment banks to startups, is exploring how to build infrastructure around a new way of making payments. It will take time (the USC should start to go live towards the end of 2018), but blockchain technology will likely become much more important to even the old-school financial world.
For you personally: Faster settlements can help the economy in the long term.
Digital currencies can boost the economy by making it cheaper for investors to conduct financial transactions, leaving more money available for actual investment. That investment can then be turned into economic growth – something we can all look forward to!