"Digital cash is a core component of a future financial market fabric based on blockchain technologies," said head of the Swiss investment bank's head of fintech innovation and strategic investment Hyder Jaffrey.
"There are several digital cash models being explored across the Street. The Utility Settlement Coin is focussed on facilitating a new model for digital central bank cash."
The currency would be linked with global currencies and central bank reserves rather than being a publicly issued digital currency such as bitcoin.
A recent report from the World Economic Forum identified blockchain, the distributed ledger technology which underpins digital currencies, as having a significant role in enabling real-time settlements to take place. As well as reducing the friction of such transactions it is also likely to reduce costs.
"Real-time settlement of international money transfers can increase profitability by reducing liquidity and operational costs," the report found.
Deutsche Bank institutional client group managing director Paul Maley said: "As today's settlement and clearing is a process involving many institutions, it's vital that we collaborate with our peers to develop viable alternatives to current models, creating new digital capabilities for the financial services industry."
Santander head of research and development Julio Faura added: "Recent discussion of digital currencies by central banks and regulators has confirmed their potential significance. The USC is an essential step towards a future financial market on distributed ledger technologies."
The banks are working with London-based startup Clearmatics to develop the USC.
The group said it is also in talks with central banks and regulators to ensure compliance and that the structure of the distributed ledger and the digital currency were up to scratch.
The Bank of England is one of the central banks looking at how digital currencies and blockchain will impact the world's financial structures.
Deputy governor Ben Broadbent told a group of Lords over the summer that the bank is considering the technical requirements of digital central bank cash and a distributed ledger amid a review of its RTGS settlements system.
"We are undergoing a review at the moment. That review will be published early next year. As it happens, we want to think about what will be involved technically, at least, in placing central bank money on some distributed ledger," said Broadbent.
UBS, Santander, Deutsche Bank and BNY Mellon are among several major banks exploring blockchain technology.
What you need to know