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JP Morgan Pilots Blockchain-Based Dollar Settlement for Indian Banks

The proposed scheme, in the emerging GIFT City financial hub, will allow customers of Indian banks to make and receive instant US dollar transactions, with 24/7 clearing and settlement processes using distributed ledger technology.

After having recently been so critical of the majority of the commercial banking establishment’s fairly cynical uptake of blockchain, it is nice to report on a bank whose embrace of the technology has been anything but.

Despite CEO Jamie Dimon’s well-documented and long-standing dismissal of Bitcoin as a ‘hyped-up fraud’, and crypto in general as a ‘pet rock’, JP Morgan has been one of the most enthusiastic proponents of the blockchain technology which powers it.

Since its launch in 2020, the bank’s Onyx blockchain platform has enabled, among over things, global wholesale payments transactions, its own crypto token - JPM Coin (presumably not a ‘pet rock’?), and a digital assets network for tokenized short-term fixed-income trading used by heavyweight players such as Goldman Sachs, BNP Paribas and Singapore’s DBS.

Earlier this month its latest blockchain-based initiative was announced, a pilot project to facilitate US dollar clearing and settlement at the International Financial Services Centre (IFSC) in GIFT City, Gujarat, India.

GIFT (Gujarat International Finance Tec-) City is a central business district under construction in the Indian city of Gujarat, which in time aims to compete with other major international financial centres. As such it is considered a quasi-foreign territory, with different regulations than those that apply across the rest of India. It hosts branches of many Indian banks and recently welcomed several major global infrastructure banks such as JP Morgan, Deutsche Bank and MUFG.

The new system will enable Indian banks with International Banking Units (IBUs, or simply ‘branches’ if you prefer) in GIFT City to process instant and 24/7 clearing and settlement of dollar transactions.

Currently, such foreign currency transfers tend to involve overseas nostro accounts, which are accounts that Indian banks hold with foreign banks. Thus when an Indian bank’s client makes or receives a dollar payment, the local bank’s account at the US bank will be debited or credited. Clearing and settlement for this process is often limited to US banking hours.

There are a few exceptions designed for financial centers like Hong Kong and Tokyo, but this is the first known use of blockchain technology in such a system.

GIFT City’s regulator has approved the running of the latest pilot scheme in a sandbox environment, and it is expected to go live in around a month’s time. When this happens, the local banks’ IBUs will be able to open on-chain nostro accounts with JP Morgan’s GIFT City branch.

Though the payment interfaces will still use the standard SWIFT messaging system, clearance and settlement of transfers to or from any counterpart bank holding a JP Morgan account will be instant and available 24/7 through its blockchain ecosystem.

We shall continue to Observe any further blockchain-based announcements from this emerging financial hub.