From FT Alphaville:
We already have a utility settlement coin: it’s called the euro
Four banks have stolen loads of column inches on Wednesday with news that they are developing “a new form of digital cash that they believe will become an industry standard to clear and settle financial trades over blockchain, the technology underpinning bitcoin”.
In the fanfare, however, lots of common sense has been abandoned.
The big idea here (allegedly) is that banks will use a “utility settlement coin” to bypass the need for costly and inefficient fiat liquidity from the cbank.
The utility settlement coin, based on a solution developed by Clearmatics Technologies, aims to let financial institutions pay for securities, such as bonds and equities, without waiting for traditional money transfers to be completed. Instead they would use digital coins that are directly convertible into cash at central banks, cutting the time and cost of post-trade settlement and clearing.
Except none of this is new. And none of this is really all that pioneering. In fact, we’d argue, it’s more of a step back to the logic that brought us the euro than it is a step forward. As we’ve noted before, the Target settlement system underpinning the euro was from the outset supposed to fulfill two objectives: to allow the European central bank to transmit its monetary policy decisions to the money markets and to develop a sound and efficient payments and clearing system by introducing a real-time gross settlement systems and one overarching common clearing currency (a.k.a the euro).
Prior to the introduction of the euro as the go-to “bridging currency” for the multi-currencied eurosystem, cross-border international settlements in Europe were mainly settled using the dollar as a “bridging currency”. As Patrick Mcguire at the BIS recounted in 2004, throughout the 1970s and 1980s, almost all trading of convertible currencies used the US dollar as a conduit currency....