Business

Tech firm to use virtual currency for international money transfer

Mitsubishi Corp. and Mitsubishi UFJ Financial Group, Inc. (MUFG) will create a new international money transfer system in cooperation with major overseas financial institutions, it has been learned.

With the envisaged system, they aim to use virtual currency technology to complete international money transfers between two parties in a few minutes, a process that can take several days using conventional methods. The companies will start an operational trial before the end of this month, aiming to put the new system into practical use within several years.

In the new system, Mitsubishi and MUFG plan to use distributed ledger technology, one of the fundamental technologies underlying cryptocurrencies. It is a method to manage ledgers containing digital data on cryptocurrency transactions and other data by network participants in a distributed manner. It is said to be operated at lower costs and is more resistant to discrepancies compared to centralized systems with specified administrators.

The new system will use the technology to ensure the transparency of the transfer process. MUFG plans to use the system for international money transfer services even for individual customers in the future.

In a trial demonstration, a Thai subsidiary of Mitsubishi will transfer Singapore dollars deposited in its account at the Bank of Ayudhya, a Thailand-based MUFG affiliate bank, to an account held by another subsidiary of Mitsubishi in a Singapore branch of major British bank Standard Chartered.

Under international money transfer systems currently used by many companies around the world, banks that can carry out direct transfers are limited. Therefore, money is sometimes transferred via several banks and can take two to four days for the transferred funds to be received by a recipient company.

A fee is charged by each agent bank that handles the money transfer, and there are many unclear issues for user companies, such as money transfer routes.

The new system will utilize technology developed by U.S.-based firm Ripple, which develops cryptocurrency systems among other technologies. As the system will enable money to be directly transferred without passing through other banks, it will take only a few minutes to carry out all of the processes necessary to complete a transaction. It will be possible for both sender and recipient to confirm money transfer records by referring to a distributed ledger, making the process highly transparent. According to Ripple, fees could be reduced by about 30 percent.

An international money transfer method using the bitcoin cryptocurrency has also attracted attention recently. However, due to frequent fluctuations in the bitcoin rate, this cryptocurrency is not thought to be suitable for intercompany payments, which can involve transfers of large amounts of money.

Additionally, some countries, such as China, effectively prohibit cryptocurrency transactions. Under such circumstances, there is demand for a system that can transfer currencies of various countries in a short amount of time and at low costs.

Major companies such as Mitsubishi complete tens of thousands of money transfers per month. The new system likely will work favorably for companies to promote overseas business strategies.

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