Four of Europe and the U.S.'s biggest banks have joined forces to work on a digital-only cash system, which they hope to launch in two years' time.
BNY Mellon, Deutsche Bank and Santander, plus U.K. brokerage ICAP, will join UBS to work on the Utility Settlement Coin (USC), which they hope will be a quicker and more efficient alternative to the current clearing and settlement process.
The coin will be aimed at banks' institutional clients and will use blockchain, the technology behind bitcoin. Blockchain works like a vast, decentralized ledger, recording every transaction made with bitcoin, the world's most-widely used pure-digital cash system. Several financial institutions are interested in the broader applications of blockchain technology.
"Digital cash is a core component of a future financial market fabric based on blockchain technologies," Hyder Jaffrey, UBS Investment Bank head of strategic investment and financial technology innovation, said in a media statement on Wednesday.
UBS says the USC could decrease the complexity and time taken to settle trades, cutting risk and improving capital efficiency for users.
The coin's success would rely on widespread adoption by financial institutions, so the participation of BNY Mellon, Deutsche Bank and Santander may be a step in the right direction for UBS.
However, several other top banks are working on their own digital-only payment systems, including Goldman Sachs and Citi.
In the meantime, UBS is in discussion with regulators to determine how the USC should function to get regulatory backing. The bank may then look to get more institutions involved.
"Recent discussion of digital currencies by central banks and regulators has confirmed their potential significance. The USC is an essential step towards a future financial market on distributed ledger technologies," Julio Faura, head of research and development at Santander, said in a media statement.
The USC would be based on cash assets, with versions available in major currencies, including the U.S. dollar, euro, sterling and Swiss franc, and would be convertible at parity with a bank deposit.
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