Several of the world's largest banks are in the process of investing around US$50 million to create a digital cash system using blockchain technology to settle financial transactions, according to people familiar with the plans.
The previously disclosed project, known as the "utility settlement coin," was first proposed by Swiss bank UBS Group AG and London-based technology startup Clearmatics in 2015. It aims to develop a system to make clearing and settlement in financial markets more efficient.
Around a dozen banks are investing in a new entity called Fnality which would run the project, one of the people said.
The deal has not been finalized so details may change. The new system could launch in 2020, the person said.
It is unclear which banks are participating in the investment round.
Banks that had previously disclosed they were working on earlier phases of the project include UBS, Banco Santander, Bank of New York Mellon Corp, State Street Corp, Credit Suisse Group AG, Barclays PLC, HSBC Holdings Plc and Deutsche Bank AG.
"We are a member of the USC Project and can confirm that the Research & Development phase is coming to an end," a spokeswoman for Barclays said in a written statement. She did not comment on the deal.
Representatives for the other banks did not provide comment.
Blockchain, which first emerged as the software underpinning the cryptocurrency bitcoin, is a shared ledger of transactions maintained by a network of computers.
Banks and other financial institutions have invested millions of dollars to test new blockchain systems aimed at reducing the costs and complexity of cumbersome processes. These include securities settlement and international payments.
Few projects have been deployed at scale so far.
The utility settlement coin, one of the most ambitious of such projects, would consist of a digital cash instrument that banks could use to settle transactions.
The coin would be a digital cash equivalent of central bank-backed currencies like the dollar or euro that would run on blockchain-based technology. It would be convertible at parity and backed by cash assets held at a central bank. Spending the digital coin would be the same as spending the fiat currency it is paired with.
The group of banks has previously said it had been in discussion with central banks and regulators to ensure the project's structure was compliant.
Other initiatives on Wall Street are attempting to test a digital coin representing fiat currency that would run on blockchain-based technology. JPMorgan Chase & Co announced in February that it had created JPM Coin, a token to enable instant transfers of payments between institutional accounts.
(Reporting by Anna Irrera; Editing by Neal Templin and Phil Berlowitz)