NEW YORK–JPMorgan Chase has become the first major U.S. bank to introduce its own digital token, or cryptocurrency, called JPM Coin Ledger that can be used for payments and exchange.
The development is somewhat ironic, since in 2017 the bank’s CEO, Jamie Dimon, called Bitcoin a “fraud” and said any employee caught trading it would be fired for being “stupid.”
But Dimon has apparently had a change of heart, saying he now recognizes the potential of blockchain and its role in the future of global banking. JPMorgan Chase earlier released a blockchain platform, Quorum, that several institutions are using to keep track of financial data, according to CNBC.
Some analysts have also suggested the move to create its own cryptocurrency is a means for JPMorgan Chase to move outside the standard payments system, including its associated fees.
“Clients engaged us, saying they need a way to move money onto the blockchain,” Umar Farooq, who leads JPMorgan’s blockchain efforts, told CNBC in a telephone interview.
The analysis by CNBC stated “the bank’s token is unlikely to shake up the financial system anytime soon. Because it will be run by JPMorgan, it lacks the fundamental qualities that have made cryptocurrencies so radical: the freedom from middlemen and from regulatory oversight.”
According to JPMorgan Chase, the bank will control the JPM Coin ledger and each coin will be backed by a dollar in JPMorgan accounts, giving the coins a stable value. That means JPM Coin will not be subject to the wild price volatility that has drawn speculators to other cryptocurrencies, noted CNBC.
European Banks Also Make Move
The report said JPMorgan Chase is following in the footsteps of several smaller players that have introduced similar digital coins tied to the dollar. A consortium of European banks has been finalizing a similar product, Utility Settlement Coin, that would make it possible to move money between banks more quickly.
“JPMorgan’s version will be less useful than other similar products because it will not be possible to move it outside the firm’s own systems, at least initially,” CNBC said. “What’s more, it is still just being tested and is not available to clients yet.”
The bank said it began working last year on what became JPM Coin to help its big customers, including major corporations and other banks, move money quickly and securely. Under the bank’s program, when customers want to move dollars using the bank’s blockchain system, money in their JPMorgan accounts will be converted into JPM Coins, each one backed by a dollar in JPMorgan’s accounts.
How It Works
The token will be able to move nearly instantaneously on the coin’s ledger, which will initially be based on JPMorgan’s Quorum blockchain, CNBC said. Once transfers are competed, the coins can be converted back to dollars.
Farooq told CNBC the advantage of such a token is speed, providing advantages in international transfers, for instance.