Utility Settlement Coin all about the “P” in DVP, says State Street
State Street’s Pinar Emirdag says the bank consortium behind USC wants to create DLT-based infrastructure for cash-leg settlements.
The financial institutions working on the Utility Settlement Coin (USC) are trying to use distributed-ledger technology to restructure interbank payments.
“We are introducing the idea of central bank-like instruments with distributed-ledger technology,” said Pinar Emirdag, London-based head of digital product development at State Street, a recently joined member of the consortium.
“This is about creating market infrastructure; the coin is a way of achieving our objectives,” which center on the cash leg of settlements among financial institutions, she told DigFin.
The USC project was launched in 2016 by UBS, with London blockchain developer Clearmatics building the technology. The aspiration is to enable banks to settle cash transactions in a digital format, with better security through decentralization, and backed by cash held in accounts at central banks.
But USC, in addition to technical challenges such as scalability and speed, still faces basic questions. What is it for?
“It can open new ideas upstream,” Emirdag said, “and lead to new product ideas, especially in payments…It’s a market infrastructure project, not just about introducing a coin.”
A central bank-like function
Central banks and monetary authorities are also exploring developing digital currencies tied to their fiat money. What’s their role?
“It’s not a conflict,” Emirdag said, adding it’s also hard to envision how central bank-created digital currencies would also function.
If USC is deemed ‘risk free’, it could provide transaction benefits – better liquidity, balance-sheet benefits, and the ability to create credit, all via distributed-ledger technology.
What do central banks want to see from a bank-led initiative to create a settlement token? What are they asking the consortium? Emirdag declined to say.
USC is a utility; a form of market infrastructure; meant to provide transaction benefits; meant to address the “P” in deliver-versus-payments in cash settlements; a central bank-like instrument; not meant to replace SWIFT, the payments messaging protocol, or Ripple, its blockchain-based rival, but to provide “a different value proposition” to either.
The project is already in ‘phase 3’, developing use cases and the role USC can play in the industry. Phase 4 is meant to “answer the hard questions and see where it leads us”, Emirdag said – a phase that should begin by summer 2018.