Several banks around the world, including the United States, Japan and Europe, created a consortium in order to work on a cryptocurrency for cross-border transfers. The goal is to reduce transaction costs and offer better services to clients. Could this digital asset become a competitor to XRP?
Could XRP Find New Competitors?
Large banking companies around the world have decided to create a new consortium to create a digital currency to perform cross-border transactions. This could create some problems for XRP that is trying to offer similar services to financial institutions around the world.
According to a recent report released by Nikkei Asian Review, MUFG and Sumitomo are leading the new initiative that includes banks from the United States and Europe. These firms want to establish a cross-border settlement framework that banks will be using in order to process payments through a fiat-pegged digital asset.
The startup was able to gather $63 million in funds from these banking companies and it will be creating accounts on these banking institutions before being able to issue utility settlement coins (USCs).
Fnality will be creating digital currencies at a 1:1 peg to the underlying fiat currency. In order to process a transaction from Japan, the bank will be depositing the transaction amount in yen to Japan’s central bank. Meanwhile, Fnality issues will be issuing the same number of USCs to the receiving bank in the U.S. where they will be converted to U.S. dollars and sent to the recipient’s account.
In a recent article released by the Wall Street Journal, Hyder Jaffrey, the investment strategy chief at UBS, commented:
“You remove settlement risk, the counterparty risk, the market risk. All of those risks add up to costs and inefficiencies in the marketplace.”
UBS is going to be part of this consortium and it has been working on this possibility since 2015. The goal is to be available as soon as in 2020 for the participant banks and financial institutions.
This could have a negative effect on XRP, a digital currency used to process cross-border cheap and fast payments. Ripple is working in order to expand XRP usage and reduce the costs that companies and individuals have to pay to send money between borders.
It is worth mentioning that Ripple could also be affected by the current initiative started by JP Morgan Chase to launch a digital currency to the market.