French bank BNP Paribas has joined a U.S.-based blockchain-powered network overseen by JPMorgan to use digital tokens for short-term trading in fixed income markets, stepping into the $12 trillion market, according to a report by Financial Times Monday (May 23).
JPMorgan has attracted more than $300 billion in cryptocurrency-focused business since it started working in the digital asset space in December, the report said. The partnership with BNP Paribas “represents the first steps in efforts to use digital tokens in one of the crucial links of the global financial system.”
The repurchase market allows investors to borrow high-quality assets for a couple of days and central banks to conduct their monetary policies, according to the report. About three out of every four deals have government bonds as their backbone, according to the Bank for International Settlements.
JPMorgan’s blockchain lets banks lend out U.S. government bonds for a few hours as collateral without the bonds leaving their balance sheets, the FT report says.
The length of the loan, settlement time and other factors are part of a smart contract, a pact that ensures the cash is in the borrower’s account when it’s borrowed and is released at the end of the deal. JPMorgan’s blockchain technology platform, Onyx Digital Assets, has facilitated more than $300 billion in short-term loans since December 2020.
Banks and their clients in Europe, the U.K. and Asia are also joining the platform, the FT report said.
Related: BIS: Cross-Border Crypto Payments Need New Regulatory Framework
Regulating the blockchain market for cross-border payments has proven to be an obstacle on the consumer side — with problems like collecting and sharing know-your-customer (KYC) data to prevent money laundering proving particularly thorny.
By cutting out financial intermediaries, sending funds internationally via crypto also cuts out the “mutually trusted central entities” that regulators and law enforcement rely upon for anti-money-laundering (AML) compliance, according to the Bank for International Settlements (BIS)’ whitepaper “DLT-Based Enhancement of Cross-Border Payment Efficiency – a Legal and Regulatory Perspective.”