Wells Fargo To Pilot Digital Coin

The various debates over crypto – security, volatility, their place within, or outside of, the central banking system – are far from settled. And against that backdrop comes … a new settlement coin.

And for the settlements, consider these stablecoins as traveling finite territory in the most recently defined uses cases – as in, intrabank.

Wells Fargo said Wednesday (Sept. 18) that it will pilot its own digital coin, known as Wells Fargo Digital Cash, which Reuters reported is to be linked to the U.S. dollar.

In terms of how the coin will work, transfers between accounts – in this case, between the bank’s own internal accounts within the organization, even across borders – will be done using distributed ledger technology.

Lisa Frazier, head of the bank’s innovation group, told the newswire that “we are eliminating the intermediaries [that] can often extend the timeline to be able to do cross-border money transfers.” The idea, too, is to cut out middlemen, making the money transfers more efficient.

The pilot is slated to begin next year, with plans to eventually have multi-currency transactions.

We note that the coins are not “outward” facing, which means they will not be used by Wells Fargo banking clients, corporate or otherwise. Readers of this space know that Wells and others have banned bitcoin transactions done through credit cards, which in the past was a nod toward unpredictable pricing.

Through that ban, the bank effectively turned away from bitcoin (at least a bit), and now is embracing its own currency to be developed and used in-house, in essence, away from volatility. The Wells Fargo news follows the JPMorgan announcement earlier this year that it would debut its own digital currency, dollar-linked and also internal, to be used by corporates.

Settlement Coins, Coin of (Part) of Banking Realm

These coins differ markedly from bitcoin and other cryptos as might be implied by another name – utility settlement coins. Utility, as in they have a purpose, and they are backed by an asset (fiat). They are used within financial markets – or, as Wells illustrates, within firms that operate within financial markets. They seemingly are tied as much to infrastructure as to currency (another key differentiator from most widely recognized cryptos).

The model of intra-system settlements across financial services seems to be gaining traction, as the Wells news comes on top of other announcements spanning the year thus far. Also on Wednesday (Sept. 18), a pair of blockchain firms, Fnality and Finteum, said they would, in tandem with several banks, build utility settlement coins based on Ethereum to help provide liquidity for FX markets. Settlement can take place 24/7, according to a release, and counterparty risk reduced. We note there is at least some difference between settlement coins and central bank digital coins (say, from China’s central bank), as there is still counterparty risk in the case of the former offering.

In June, Fnality International, which is the firm behind the utility settlement coin, took shape as the Utility Settlement coin projects, which garnered $63 million in financing.

The project is backed, as reported, by Banco Santander, BNY Mellon, Barclays, CIBC, Commerzbank, Credit Suisse, ING, KBC Group, Lloyds Banking Group, MUFG Bank, Nasdaq, Sumitomo Mitsui Banking Corporation, State Street Corporation and UBS. The initial five currencies being reported include CAD, EUR, GBP, the dollar and the yen. The June announcement stated that settlement would comply with local settlement laws.

For settlements within banks, especially across borders, stability is key – and the direct nature of the trading means cash need not be kept as collateral when settling in different currencies.