Digital coins made tangible – Libra, JPM Coin coming to life?

Published: Sep 2019

Last year most blockchain pundits confidently predicted that the first widespread application of blockchain in treasury would be in trade. This year all the news is about digital coins on industrial grade stablecoins, backed by real money assets. Could this be an inflection point?

A taxonomy of coins

Bitcoin is no doubt the reason that the term ‘coins’ has arisen. After all, Bitcoin is the founding father of cryptocurrencies and the implementation that brought distributed ledger technology (DLT) to public awareness.

Since the formation of bitcoin, DLTs have evolved from permission-less DLTs, where no one is in control and anyone can set up a node, to permissioned DLTs, where only approved parties can run nodes on the DLT.

From a money perspective, bitcoin is an example of a new currency. It is not pegged to, nor dependent upon, any fiat currencies or commodities.

To mitigate the extreme volatility of bitcoin and the like (so-called “V-Coins”), the market has developed stablecoins which are backed by some other assets – normally fiat currency, commodities, financial assets, and even other cryptocurrencies.

Last year Venezuela launched the ‘Petro’ – a cryptocurrency backed by its oil reserves in order to get around sanctions. Gold-based virtual currencies have also been tried over the past few decades. J.P. Morgan’s JPM Coin is pegged to US dollar (USD), while Facebook’s Libra is backed by a basket of high-quality liquid assets in various large economy currencies. Central banks are also studying issuing digital fiat currency as coins on a DLT or otherwise. The ones that are likely to be most relevant for treasurers are Stablecoins, Fiatcoins, and Digital fiat currency.


Facebook Libra is an example of a Stablecoin and an intriguing prospect for treasurers. Unlike JPM Coin, which is at its heart the USD in a new form, Libra is a brand new currency.

For treasurers, Libra could indeed be a safe middle currency between competing currency blocks which are likely to become even more volatile due to ongoing trade wars and economic uncertainty.

Libra will also be properly distributed from its independent ruling association and across hundreds of partners. This will make Libra more robust than a single point database (as intended in the design of DLT) and also create a deeper ecosystem to add value to Libra with different services. Libra is a multi-asset DLT and its ability to handle multiple asset types will open up some interesting trade opportunities.

Unfortunately, governments and central banks are currently taking a very negative view of Libra,due to the current distrust of big tech and central bank change resistance. This is a pity because it is a golden opportunity to make Facebook give back to society by paying for this grand experiment while regulating Libra tightly (bank regulation plus), especially as central banks are also looking at what they call a synthetic hegemonic currency (SHC) as a replacement for the USD.

Type of coin Characteristics Example
V-Coin Pure digital currency without backing and therefore extremely volatile Bitcoin
Stablecoin Backed by real world assets eg currency, assets and commodities Libra
Fiatcoin Pegged to and backed by fiat currency but not central bank issued JPM coin
Digital fiat currency Central bank-issued digital currency e-Krona


Unlike Libra, JPM Coin is USD on a DLT, and will be regulated as a bank deposit, attract FIDC insurance, and behave like normal USD. Although it will be on a DLT, it will be permissioned and the other banks who have signed up to use it will access it through APIs to J.P. Morgan itself who will run all the nodes itself. In essence the ‘distributed’ part of DLT will be absent.

Although the vision for JPM Coin includes corporate use, initially it will be a bank-to-bank product only. Corporates will not be able to use JPM Coin directly, but through their own bank accounts as a replacement of correspondent banking for cross border transfers.

With SWIFT GPI becoming mandatory for 10,000 banks in 2020, it may seem hard to understand the unique selling point of JPM Coin. Cost is suggested as a driver. If it heralds cross border payments for pennies, then it certainly deserves treasurers’ support.

In order to maintain speed, JPM Coin DLT will handle only minimal data payload with payments. Enriched data, such as remittance information to aid in reconciliation, will go through a separate network, although this opens up risks of data synchronisation.

Unlike Libra, which might potentially replace USD as the global currency, if successful, JPM Coin might rather entrench on the USD hegemony. Under the correspondent banking model, it might also undermine today’s USD clearers, and could bring a huge deposit base to J.P. Morgan itself.

JPM Coin is credible new technology, coming from a major global bank. It is simply USD regulated by the Federal Reserve and the US bank regulatory system. Unlike Libra, which raises questions to regulators and users alike, JPM Coin will have minimal barriers to adoption. Its success depends only on market acceptance, which will be largely down to commercial factors – mainly cost.

Digital fiat currency

Digital fiat currency could be surprisingly disruptive too, as it effectively offers the public direct access to central bank money. In the current system (fractional reserve banking), the public has access to money mediated and created by commercial banks. The central bank provides banking to the commercial banks, and manages money through policy rates and the commercial banks through regulation.

This means that digital fiat currency, depending on how it is introduced, might disintermediate the commercial banks, since the public would be able to bank directly with the central bank. This is not so outlandish – in the 2018 Vollgeld referendum, Switzerland voted against a proposal to restrict money creation to the central bank, for example to stop fractional reserve banking.

In this sense, JPM Coin is a far more conservative suggestion than digital fiat currency because it maintains the role of banks in fractional reserve banking. However, it risks fragmenting the market – even if bank coins are all in a regulated peg to USD. This raises the question – how will users choose between J.P. Morgan-, Citi, Bank of America Merrill Lynch-, and Wells Fargo- coins? Will they all be interoperable?

If JPM Coin is really useful, it would be better if organised as a multi-bank service like current clearing systems such as CHIPS, ACH, and THC for real-time payments. The Federal Reserve wants to implement another fast payment system to compete with THC – potentially a digital fiat currency on blockchain could fulfil this function.

Digital fiat currency need not be on a DLT. The Dutch central bank tested DNBcoin on a DLT in 2015. The Swedish National bank (Riksbank) has been studying e-krona since 2017 in a technology agnostic way – either allowing the public to open accounts directly with the Riksbank or implementing e-krona as a token presumably on DLT (or even both).

Stefan Ingves, governor of the Riksbank believes that the two solutions are not very different from an economic perspective:

“If we construct an e-krona, there are in principle two models we could base it on,” he says. “In one of them, the e-kronas would be held in an account with the Riksbank and in the other, the e-kronas would be in the form of digital units of value (tokens) stored locally, for instance on a card or in a mobile app.”

So far, the Riksbank seems to be proceeding towards implementing e-krona at some point in the future.

Mark Carney, Governor of the Bank of England, recently hinted that the global economy needs a new hegemonic currency to replace the USD. “It is an open question whether such a new SHC would be best provided by the public sector, perhaps through a network of central bank digital currencies.”

This sounds much more like Libra than JPM Coin.


It remains hard to predict the near future of Stablecoins, but in the longer term it is likely that central banks will start to offer digital fiat currencies in various forms. This will be a functional boon for treasurers and may also disrupt fractional reserve banking – which will be a big change. JPM Coin faces no impediment, other than pricing. Libra will continue to face regulatory and political resistance, which is disappointing because the risks can be managed through regulation and it would be a great opportunity to let Facebook bear the cost.

David Blair, Managing Director

David Blair, Managing Director, Acarate

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Twenty-five years of management and treasury experience in global companies. David Blair has extensive experience managing global and diverse treasury teams, as well as playing a leading role in eCommerce standard development and in professional associations. He has counselled corporations and banks as well as governments. He trains treasury teams around the world and serves as a preferred tutor to the EuroFinance treasury and risk management training curriculum.

Clients located all over the world rely on the advice and expertise of Acarate to help improve corporate treasury performance. Acarate offers consultancy on all aspects of treasury from policy and practice to cash, risk and liquidity, and technology management. The company also provides leadership and team coaching as well as treasury training to make your organisation stronger and better performance oriented. |

The views and opinions expressed in this article are those of the authors

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