J.P. Morgan this month became the first US bank to create and successfully test a digital coin representing a fiat currency. The JPM Coin is based on blockchain-based technology enabling the instantaneous transfer of payments between institutional accounts. In an interview on the bank’s website, Umar Farooq, head of Digital Treasury Services and Blockchain, talks about the announcement and what it means for the future of payments.
What exactly is the JPM Coin and what is it used for?
JPM Coin is a digital coin designed to make instantaneous payments using blockchain technology. Exchanging value, such as money, between different parties over a blockchain requires a digital currency, so we created the JPM Coin.
Are JPM Coins a currency or legal tender?
The JPM Coin isn’t money per se. It is a digital coin representing United States Dollars held in designated accounts at JPMorgan Chase N.A. In short, a JPM Coin always has a value equivalent to one US dollar. When one client sends money to another over the blockchain, JPM Coins are transferred and instantaneously redeemed for the equivalent amount of US dollars, reducing the typical settlement time.
Will it be used for other currencies besides the US Dollar?
Over time, JPM Coin will be extended to other major currencies. The product and technology capabilities are currency agnostic.
How does it work?
The diagram below is a simple representation of how the process works.
In step 1, a J.P. Morgan client commits deposits to a designated account and receives an equivalent number of JPM Coins.
In step 2, these JPM Coins are used for transactions over a blockchain network with other J.P. Morgan clients (e.g., money movement, payments in securities transactions).
Finally in step 3, holders of JPM Coins redeem them for USD at J.P. Morgan.
Are regulators supportive of the JPM Coin?
JPM Coin is currently a prototype. As we move towards production we will actively engage our regulators to explain its design and solicit their feedback and any necessary approvals.
Does the JPM Coin run on Quorum, J.P. Morgan’s blockchain technology?
The JPM Coin will be issued on Quorum Blockchain and subsequently extended to other platforms. JPM Coin will be operable on all standard Blockchain networks.
What impact will JPM Coin have on J.P. Morgan’s other businesses like Custody or Clearing & Settlement?
It is still too early to assess the ultimate impact of blockchain on different businesses. We continue to work with our clients around the world to explore different use cases for this type of technology.
Does the development of JPM Coin have any impact on the Interbank Information Network (IIN), J.P. Morgan’s new blockchain network?
IIN transfers information, not payments, between correspondent banks. The JPM Coin, representing fiat currency, is designed to instantaneously transfer value.
Can I use JPM Coins as an individual consumer?
JPM Coin is currently a prototype that will be tested with a small number of J.P. Morgan’s institutional clients, with plans to expand the pilot program later this year. JPM Coin is currently designed for business-to-business money movement flows, and because we are still in a testing phase, we don’t have plans to make this available to individuals at this stage. That said, the cost-savings and efficiency benefits would extend to the end customers of our institutional clients.