JPMorgan Chase & Co. is reportedly in the early phases of exploring a blockchain-based digital deposit token aimed at expediting cross-border payments and settlements. According to Bloomberg, the US-based bank has laid the groundwork for the necessary infrastructure for this innovative payment method. However, the creation of the token hinges on obtaining approval from regulatory authorities in the US.
In essence, deposit tokens are digital coins that represent a deposit claim against a commercial bank, mirroring the deposits held by customers in their accounts. Transactions involving these tokens are processed on blockchain technology, resulting in instantaneous settlement. Advocates of this emerging form of digital currency also argue that it could potentially reduce transaction costs.
Representatives from JPMorgan commented on this development and talked about the benefits of deposit tokens while highlighting the point of view of regulators, who need to be diligent before any new product gets developed and used. They also revealed that the bank's blockchain infrastructure would be able to support the launch of deposit tokens relatively quickly.
The bank had previously tested issuing deposit tokens in a single transaction in 2022 as part of the Monetary Authority of Singapore's Project Guardian, and underscored the potential of this form of currency in a recent study.
Bloomberg reports that this move signifies an expansion of JPMorgan's blockchain initiatives, which have been at the forefront of Wall Street's efforts to leverage blockchain technology to streamline certain cumbersome banking processes.
In addition to this initiative, JPMorgan has already developed several applications utilising blockchain technology, including JPM Coin, which was introduced in 2019. JPM Coin facilitates the movement of dollars and euros among certain JPMorgan corporate clients within the financial institution. The bank reported in June 2023 that it had processed approximately USD 300 billion in transactions through this system since its launch. To put this in perspective, JPMorgan handles USD 10 trillion in US dollar transactions per day.
The proposed deposit token would serve a different purpose than JPM Coin, as it could be employed to easily transfer funds to clients of other banks. It is also well-suited for settling trades involving tokenised securities or financial instruments issued on a blockchain.
Much like JPM Coin, its infrastructure would integrate with the bank's existing compliance systems, ensuring compliance with know-your-customer, anti-fraud, and other essential checks, as well as regulatory reporting.
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