The regulatory path to bringing stablecoins to commercial, traditional banking activities is getting clearer. And as a result, we may see these coins – defined as cryptocurrencies that are pegged to some underlying unit of value (such as U.S. dollars) – gain a wider embrace by enterprises and consumers. To that end, the Office of the Comptroller of the Currency (OCC) said on Monday (Jan. 4) that banks can utilize stablecoins in transactions, among other banking activities.
In an interpretive letter, the OCC said that regulated financial institutions (FIs) can participate in independent node verification networks (INVN for short – namely, a blockchain network).
One important distinction tied to what the interpretive letter does not cover: bitcoin and other cryptos that are decentralized in nature and not pegged to some underlying, external asset.
At a high level, the OCC's interpretive letter indicates that banks and savings associations will be able to create and issue stablecoins, utilizing them with accounts and for a range of transactions. The letter specifically takes note of “the payment of remittances, which often involve cross-border transfers of money.”
Growing Support for Stablecoins
In recent evidence of the lure of stablecoins, J.P. Morgan Chase launched JPM Coin in 2019, and more recently launched a new business unit dedicated to blockchain and digital currencies. The banking giant has noted that, as it moves $6 trillion across borders on a daily basis (via wholesale transactions), it has been researching streamlined ways to move that money.
In terms of actual transactions, the OCC said in its letter that “a bank may use stablecoins to facilitate payment transactions for customers on an INVN, including by issuing a stablecoin and by exchanging that stablecoin for fiat currency. In this context, stablecoins function as a mechanism of payment, in the same way that debit cards, checks and electronically stored value (ESV) systems convey payment instructions. Banks have long used cashiers’ checks, travelers’ checks and other bearer instruments as a means of facilitating cashless payments.”
The January letter comes in the wake of the introduction of legislation last month on Capitol Hill that firms seeking to issue stablecoins would need to apply for and receive bank charters.
There is already evidence that stablecoins are gaining currency (pun intended) across the business realm. In an interview with Karen Webster, Jeremy Allaire, CEO of Circle, said that digital dollars – as distinct from, say, bitcoin – are becoming more widely circulated.
By way of example, Circle recently announced that there is $3.3 billion worth of U.S. digital dollars (USDC) in circulation, up 500 percent year on year. Allaire noted that Circle has been launching USDC across a number of networks and exchanges, with transactions already numbering in the tens of thousands per second.
And in a nod toward wider-spread availability, payments networking giant Visa recently added USDC as an option for the more than 60 million merchants on its network.
As Allaire told Webster, “there’s a tremendous opportunity to use blockchains and identity infrastructure to significantly improve and simultaneously provide incredible accountability to law enforcement and preserve privacy,” adding that “there are some open questions there, and I think those will be the big issues walking into the new year.”
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