William John Market Report 28-12-21
William John analyses the impact of blockchain technology on global financial services.
Blockchain, WilliamJohn, JPMorgan, Onyx, Forex, ForeignExchange, Markets, Technology, Digital
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William John Market Report 28-12-21

William John Market Report 28-12-21

Category: Reports

Blockchain, the peer-to-peer computerised ledger system that underpins cryptocurrency and decentralised applications on notable crypto platforms such as Ethereum, Cardano and Solana, continues to evolve finance and financial services. Last week, J.P. Morgan announced it was partnering with Siemens to develop a blockchain ledger system to facilitate the company’s internal payments automatically. 

Onyx, the business unit of J.P. Morgan responsible for blockchain technologies, offers its clients three separate propositions. Liink, which is responsible for exchanging “payment-related information quickly”, Coin Systems which facilitates transactions themselves and Blockchain Launch which is responsible for developing blockchain applications and the technology itself. Ran by Umar Farooq, who has significant executive experience as the prior Global Head of Digital Wholesale Payments and Head of Blockchain for the Corporate and Investment Bank (CIB) and was the CFO and Head of CIB Fintech prior to that, Onyx is the first business unit established by a global bank dedicated to blockchain. 

In partnership with Siemens, Onyx has developed an automatic payments blockchain system that will allow the industrial group to transfer US dollars between its accounts, with a plan to expand to Euros next year according to the Financial Times. Siemens has claimed that with the rise of certain products such as “pay per use”, the group’s volume of transactions is expected to increase dramatically, giving rise to a need for automatic and more efficient processing and facilitation for such transactions. As well as efficiency, a lowering of costs and general transaction management benefits, transitioning to a blockchain accounting system will allow the group to forecast its cash flows more accurately as its business model becomes more and more reliant on digital solutions and services. 

Elsewhere, earlier this month HSBC and Wells Fargo agreed to facilitate their foreign exchange transactions directly between one another using HSBC’s FX Everywhere platform. The FX Everywhere platform will facilitate the payments of US Dollars, Pound Sterling, Euros and Canadian Dollars using a blockchain ledger system to process the transactions cross-border. The move will see their existing partner, the Continuous Linked Settlement (CLS) Group, excluded from further cross-border FX business between the two banks. The CLS has been designated as one of eight existing “systematically important financial market utilities” in 2012 by the Financial Stability Oversight Council, which identifies entities whose collapse could threaten the stability of the US financial system. Furthermore, the CLS has been measured as being responsible for settling over 50% of global forex exchange transactions in 2017 and set a single day record of $11.1 trillion USD in foreign exchange payment value on 21/06/17. Hence, opting for the implementation of this new blockchain system versus such an important and established payments system exhibits the emerging power of blockchain technology. 

Finally, blockchain implementation has not just been limited to commercial banking. Under “Project Jura”, a collaborative project between the Banque de France, the BIS Innovation Hub Swiss Centre, the Swiss National Bank and “a private consortium”, central banks have been testing the facilitation of cross border payments of central bank digital currencies using blockchain. 

Blockchain clearly extends beyond cryptocurrency. With the establishment of the Onyx business unit of J.P. Morgan, it is likely many global banks will follow suit, compounding the availability and quality of blockchain services and solutions available to wider Financial Services, which (as proven) with Project Jura could reshape global finance from the top (Central Banks) to the bottom (peer to peer transactions). It is an undisputed value-add evolution for finance; however, it does threaten the existing institutions in place, including central clearing houses for exchange transactions and notably the CLS in the case of foreign exchange – one of the most important financial institutions in the world. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.