Deutsche Bank, Santander, BNY Melon and broker ICAP will now work with UBS to develop the utility settlement coin (USC), a blockchain-based digital currency.
There is a version of the USC for each major currency, and these will be used for payment and settlement in institutional financial markets, Deutsche Bank said. The coin is convertible at parity with a bank deposit in the same currency, and is backed by cash assets held at a central bank.
Blockchain distributed ledger technology is best known for underpinning trading involving the digital currency bitcoin, but it has many other potential uses. Broadly it can be likened to a type of database that, using cryptography, can be operated as a digital public ledger for recording information, such as the transfer of assets between two or more parties.
UBS has been testing the coin's potential with Clearmatics Technologies since 2015, and the success of that first phase paved the way for the introduction of the new partners, Deutsche Bank said.
The USC concept will be developed through a series of "short iterative phases and platform deployments". At each stage the aim is to increase the number of market participants, Deutsche Bank said.
Clearmatics will continue to work on new releases of the technology platform to underpin the concept, the bank said.
Hyder Jaffrey, head of fintech innovation at UBS said: "Digital cash is a core component of a future financial market fabric based on blockchain technologies. There are several digital cash models being explored, but the USC is focussed on facilitating a new model for digital central bank cash."
Financial technology expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com said: "The discussion around distributed ledgers and blockchain is again focusing on the usefulness of the technology for transacting - transferring cash across borders. Of course, this was the starting point with bitcoin but for some time seemed to be of less interest to many while other potential uses of blockchain technology were being explored. But it has never gone away as a key focus for financial institutions and central banks."
"As the Bank of England has recently confirmed, the use of digital currencies backed by a distributed ledger as technology to replace current systems for transferring value has great potential for innovating fundamental aspects of the financial system," Scanlon said.
A separate group of banks announced earlier this month that blockchain can be used to replace paper-based letters of credit in trade finance transactions. The Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore (IDA) used open source Hyperledger software to create an app that replaces the paper-based transaction.