TOKYO -- Major banks in Japan, the U.S. and Europe are developing a blockchain-based digital coin that can be used to instantly settle overseas money transfers instantly, lowering transaction costs by cutting out intermediaries.

The project will be run by Fnality International, a company recently established in London with about 50 million pounds ($63.1 million) in capital from 14 participating banks, including Japan's MUFG Bank and Sumitomo Mitsui Banking Corp.; UBS, Credit Suisse and Barclays of Europe; and U.S.-based State Street. The Japanese banks are believed to have contributed several hundred million yen each.

Fnality will set up accounts at participating central banks and issue utility settlement coins, or USCs, digital equivalents of major currencies that can be converted into their paired currencies on a one-to-one basis.

When a client transfers money from Japan to the U.S., a Japanese commercial bank transfers the specified amount of yen to the country's central bank. Fnality then issues the equivalent amount of USCs, depositing them into an account at a specified American commercial bank. This bank immediately sends the equivalent amount of dollars into the end client's personal account.

The USCs will be backed by the central banks, mitigating the risk of price fluctuations and providing a more stable method for interbank transfers.

Unlike cryptocurrencies, whose value fluctuates, often wildly, USCs reflect foreign exchange rates. As USCs enable immediate settlements, clients can reduce their exposure to forex risks inherent in conventional transactions, which require more time.

Fnality intends to have further discussion with representatives from central banks about setting up USB accounts.

Currently, cross-border transfers must go through multiple steps involving third-party intermediaries as well as the foreign exchange market if different currencies are involved, adding fees and other costs to the process. USCs will eliminate the need to buy the destination currency in the market, allowing for orders to be processed immediately.

Transmissions that currently take a full day or even longer will be carried out much more quickly.

The system will initially work with U.S. dollars, euros, pounds, yen and Canadian dollars. Fnality plans to step up negotiations with central banks and aims to issue the first USC by late 2020.

Like bitcoin and other cryptocurrencies, USCs will use blockchain, record-keeping software that makes it difficult to falsify data on past transactions. But USCs will play a fundamentally different role from other digital currencies, as they are used only by financial institutions and are backed by central banks.