The US government is turning to stablecoins—transferable digital tokens backed by fiat currency—as a way of speeding up its notoriously slow domestic payments system.
Earlier this week the Office of the Comptroller of the Currency (OCC), an independent bureau of the US Treasury, issued an interpretive letter saying that US banks may use stablecoins to carry out payment activities.
The OCC also said banks could record those payments transactions by serving as a node on an independent node verification network (or ‘INVN’—the term the OCC uses to refer to a blockchain).
The move by the OCC, which regulates and supervises all national banks in the US, has been greeted as a significant step towards the acceptance of blockchain technology and as a sign of the continuing convergence between traditional and cryptocurrency-based finance.
“Blockchain is coming of age”
“Blockchain is coming of age,” said Jennifer Murphy, COO at Western Asset Management, in response to the release of the letter.
“The OCC is paving the way for the accelerated adoption of blockchain-based infrastructure in financial services,” she said.
The OCC’s head, Brian Brooks, served previously as chief legal officer of cryptocurrency exchange Coinbase.
Last summer, Brooks touted the efficiencies of stablecoins for money transfers and argued that the US payments infrastructure did not have to be government-run.
“Instantaneous settlement [with stablecoins] would be a game-changer,” Brooks said during a podcast with US-based stablecoin provider Circle, noting the blockchain-based system’s speed and cost advantages.
Independently from the OCC’s initiative, the US central bank, the Federal Reserve has been trying to speed up domestic dollar transfers via new real-time payments system called FedNow. However, this is not due to come into force until 2024 at the earliest.
Brooks also argued that widespread adoption of stablecoins in the US could help preserve the role of the dollar in the global financial system.
“Currently, we are the only country in the world that doesn’t have to change money to buy oil in Saudi Arabia,” he told Circle CEO Jeremy Allaire during the podcast.
“Even the Saudis do. That can’t last for years,” Brooks said.
“The dollar has been a reserve currency for a long time not because it’s better or easier to use but because it’s more liquid.”
In November the Bank for International Settlements (BIS), the main policy-making and research body for the world’s central banks, said that stablecoin volumes could expand by “orders of magnitude” during the coming years.
Stablecoins in issue currently total around $28bn, with around 80 percent of the total in the controversial, unregulated dollar stablecoin called tether.
“We are on a path towards all major economic activity being executed on-chain”
Earlier this week Jeremy Allaire, Circle’s CEO, hailed the OCC’s decision and predicted it would have widespread consequences.
“Decentralised, permissionless, open source and internet-mediated software is literally becoming the foundation for not just the US financial system but for the global economy,” Allaire said on Twitter.
“We are on a path towards all major economic activity being executed on-chain. It is tremendous to see such forward-thinking support from the largest regulator of national banks in the United States,” Allaire said.
In its interpretive letter, the OCC said it viewed stablecoins as an evolutionary, rather than a revolutionary technology
“Stablecoins function as a mechanism of payment, in the same way that debit cards, checks, and electronically stored value (ESV) systems convey payment instructions,” the OCC said.
“Banks have long used cashiers’ checks, travellers’ checks, and other bearer instruments as a means of facilitating cashless payments.”
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