- Vanguard Group is testing a blockchain-based platform that would allow asset managers to trade currencies without using big banks as intermediaries, Bloomberg reported on Thursday.
- The foreign exchange market handles $6 trillion a day and is currently dominated by companies like JPMorgan Chase and Citi.
- Vanguard’s platform allegedly bypasses bank fees through peer-to-peer trading and has already processed a few transactions, a source told Bloomberg.
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Vanguard Group is testing a blockchain-powered platform for asset managers to trade currencies, Bloomberg reported on Thursday.
An entry into Vanguard’s business could bring a long-sought change in the bank-dominated forex market. The investment giant has already disrupted the world of finance by introducing low-cost index funds to the masses.
The foreign exchange market handles $6 trillion a day, according to Bloomberg, and forces banks like JPMorgan Chase and Citi to execute trades.
Asset managers currently rely on banks as intermediaries for currency transactions, even after buying firms began matching transactions on electronic services in the 2000s. The system Vanguard tested would avoid mainstream actors and their fees, Bloomberg reported.
The investment giant’s department has been working for two months and has already processed some transactions, a source told Bloomberg. The platform uses the same blockchain technology behind Bitcoin to match transactions and could reduce trading expenses if enough users join the service.
“In theory, that sounds good because you can cut your costs if you can partner directly with someone else who has a compensating interest,” Campbell Adams, a former Deutsche Bank senior currency trader, told Bloomberg. founder of ParFX. However, such a platform “will require a critical mass of users” if it is to bring a massive industry discount advantage, he added.
The investment advisor has previously hinted at efforts to be competitive in peer-to-peer trading. Andy Maack, global head of foreign exchange at Vanguard, said The exchange there is “tremendous interest in the potential for disintermediation”.
Peer-to-peer trade matching “is quite intriguing, especially for FX markets which have only really started to seriously explore this topic in recent months,” he added in the September interview.
The company did not comment further on the platform’s plans, but noted its interest in currency hedging and reducing “the cost of investing for all investors.”
“Vanguard is currently piloting a project focused on improving efficiency and reducing currency hedging risk,” Vanguard spokeswoman Carolyn Wegemann said in a statement to Business Insider. “Since the project is still in the pilot stage, we cannot comment further.”
Vanguard has over $5 trillion in assets worldwide and is the world’s largest mutual fund provider. It also provides exchange-traded funds that track major stock indices.
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