TOKYO -- Japan's Bank of Tokyo-Mitsubishi UFJ is joining an international development project that will produce a digital currency to expedite interbank fund transfers.

Swiss megabank UBS launched in 2015 the "utility settlement coin" initiative, which employs the blockchain technology underlying bitcoin and other virtual currencies. Global names like the Bank of New York Mellon, Deutsche Bank and Banco Santander have also joined the project.

Test runs for the concept have involved either the U.S. dollar or the euro, but the basket will extend to the Canadian dollar and the yen. The addition of the Japanese currency prompted Mitsubishi UFJ Financial Group's banking arm to collaborate.

This innovation will be limited to bank-to-bank transfers, and the virtual currency will be backed by deposits held by central banks. Participating banks will be able to finalize settlements using just the utility settlement coin.

In Japan, whenever individual or corporate account holders transfer funds, banks ultimately adjust their deposits kept at the Bank of Japan to reflect those transactions. Each day, the BOJ-Net handles 69,000 settlements at a volume of 136 trillion yen ($1.23 trillion).

International banks, however, do not necessarily maintain deposits at the same central bank to facilitate transactions. To manage transfers outside those channels, separate bank accounts would need to be opened, and dollars and other currencies would have to be set aside. The adoption of a digital cash would eliminate that burden and speed up the process.

The utility settlement coin is set to go live on a limited basis in 2018, with the aim to become fully operational around 2020. Meanwhile, BTMU plans to offer a new overseas wiring service that utilizes blockchain technology from U.S. startup Ripple, starting early in 2018.

(Nikkei)