[NEWS] Japan's three megabanks conduct pilot tests for international remittances using stablecoins

It has been revealed that Japan's three megabanks, including Mitsubishi UFJ Financial Group (FG), are creating a system for instant international remittances using international settlement infrastructure between banks and blockchain technology.

They are aiming to put it into practical use by 2025. The time it takes for the money to arrive, which can take up to a month, will be reduced to almost zero, and the cost of remittances between companies is expected to drop significantly. The Nikkei reported.

Mitsubishi UFJ FG, Mizuho FG, and Sumitomo Mitsui FG will begin pilot tests for practical application this fall with more than 10 major financial institutions, including other domestic banks and major European and American banks.

The system is expected to be used for international remittances between companies, mainly for trade settlements. In the future, it will also be available for personal monetary transactions, such as remittances for studying abroad.

The new system is characterized by its combination of blockchain technology with the current international settlement infrastructure, the Society for Worldwide Interbank Financial Telecommunication (Swift), and blockchain technology. The aim is to start the early introduction of the new system by working together with SWIFT, without neglecting it.

Currently, international remittances using SWIFT are relayed through multiple banks called "correspondent banks." Therefore, even if the remittance is smooth, it takes several tens of minutes, and if there are insufficient information related to anti-money laundering measures, it can take up to a month.

This time, in collaboration with SWIFT, the association's payment infrastructure is used to directly transfer funds between banks using stable coins pegged to the value of legal tender on the blockchain, enabling ultra-fast payments with a time to arrival of funds of less than one second.

By utilizing SWIFT, an existing infrastructure, financial institutions do not need to build new systems, and investment costs can be reduced. Companies can also transfer funds using the same procedure as before, which is to request remittances from a bank. The new system requires the effort of going through new procedures, so this problem has been solved.

The only costs that companies and individuals pay are exchange fees and fees for using the blockchain infrastructure. According to the Bank of Japan, when sending $200 (approximately 28,600 yen) overseas via a bank using the conventional SWIFT international remittance system, a huge fee of 17.5% of the remittance amount was charged on average from 2013 to 2019.

Fees to be less than 10%

For emerging countries where fees are particularly high, remittance costs will be less than 10% of the previous amount.

The three megabanks will work with UFJ-led blockchain platform Progmat, in which they have invested, and blockchain-developed DataChain to build a remittance system and issue stable coins that can be used between banks.

SWIFT has decided to partner with Japanese banks because it appreciates the progress of legal developments regarding electronic payments in Japan.

According to the US research firm Allied Market Research, the size of the international payment market will be 182 trillion dollars (approximately 26,000 trillion yen) as of 2022. The G20 summit pointed out the need to improve the cost and speed of international remittances, which has become a global issue. If this pilot project progresses, it will be possible to make the world's first public payments using blockchain.

Reference: Nikkei
Image: Shutterstock

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