How UBS will change the business model of the world's largest bank

Rage Commentary : According to news reports, UBS is working with the world's four largest banks to develop a blockchain-based transaction settlement system, setting a precedent for this research direction. Recently, this project has announced a new digital currency, USC, which is different from decentralized digital currencies such as Bitcoin and is more similar to major currencies issued by central banks such as the euro, with the same value and purchasing power as them. This move once again confirms the possibility of global central banks issuing digital currencies.

Translation: Annie_Xu

UBS is leading the world's four largest banks to develop a financial system that will allow financial markets to use blockchain technology for efficient payments and settlements.

UBS has developed a new digital currency, USC (Utility Settlement Coin), which has the same value as major currencies issued by central banks, such as the euro or the US dollar, unlike decentralized digital currencies such as Bitcoin.

USC is redeemable for bank deposits in the corresponding currency, meaning that the currency is fully backed by central bank cash assets. UBS said USC has the same purchasing power as its real counterpart currency.

This type of blockchain project has the potential to revolutionize the banking settlement system, which can take days to process and costs the financial industry $65 billion to $80 billion a year, consultancy Oliver Wyman said last year.

Hyder Jaffrey

Hyder Jaffrey, head of fintech innovation at UBS investment bank, said:

"Digital currency is a core element of the future financial market architecture."

In September 2015, UBS first released this concept in conjunction with Clearmatics, a blockchain company in London, UK, and NY Mellon, Deutsche Bank, Santander and financial institution ICAP have joined the project.

Blockchain can serve as a tamper-proof shared ledger that uses computer algorithms to automatically process and settle transactions without the need for a third-party verification agency.

Because it requires no manual processes and no intermediaries for verification, blockchain can make payments faster, more reliable and easier to audit.

SETL, a startup run by London’s elite, is developing a similar system, and many big banks are also working on related projects internally. But this is the first time big banks have come together to develop a digital currency settlement system.

Financial industry regulators are also assessing the impact of blockchain to determine whether it can meet technical, regulatory, legal and management requirements.

This month, the World Economic Forum reported that more than 90 central banks are discussing the application of blockchain technology and predicted that 80% of the world's commercial banks will launch research and development projects around blockchain technology in 2017.

Edward Budd

Edward Budd, Chief Digital Officer, Global Transaction Banking, Deutsche Bank, said:

"The possibility of practical application and implementation of central bank digital currencies is becoming a hot topic in the financial services industry."

"It raises questions, possibilities, around the fundamental principles of the market architecture: who gets access to central bank money and how."