By Ross Macdonald
On January 4th 2021, OCC (Office of the comptroller of the Currency) based in Washinton, DC, USA, published a letter as stated to :
“clarifying national banks’ and federal savings associations’ authority to participate in independent node verification networks (INVN) and use stablecoins to conduct payment activities and other bank-permissible functions.”
What this means in simple terms is that in the USA, banks can now look at blockchain technology for financial transfer protocols.
Banks recognise they are financial intermediaries, so they have to adapt to the needs and wants of their customers. The existing financial system, specifically in money internationally has been slow ever since the dawn of the SWIFT banking transfer system. The statement from the OCC to improve this said:
“Industry participants recognize that using stablecoins to facilitate payments may combine the efficiency and speed of digital currencies with the stability of existing currencies.”
The document continues to tap into the advantages of INVNs and the demand for them from the public. The OCC realizes that stablecoins have a growing demand right now in finance.
“Stablecoins thus provide a means by which participants in the payment system may avail themselves of the potential advantages associated with INVNs. Billions of dollars’ worth of stablecoin trade globally, and demand for stablecoin continues to grow.”
Here is where the green light was given with little specifics:
“… a bank may use INVNs and related stablecoins to carry out other permissible payment activities. A bank must conduct these activities consistent with applicable law and safe and sound banking practices.”
What many may not have considered with this migration of thought and approval from the OCC, is that by allowing banks to purchase or use stablecoins (USDT, BUSD, USDC, DAI, TUSD) a US dollar sold for a stablecoin, eliminates the ability for that dollar to be used with FRB (fractional reserve banking) or leveraging the dollar 10x with current laws. The only way FRB could work with stablecoins is if laws allowed financial institutions to apply this ten to one ratio against the value of banks stablecoin value. This is unlikely right now if regulators understand how and why new stablecoins are minted being pegged to real-world assets or dollars. We will have to see if this is the end of the continuation of FRB.
The OCC statement says that banks must hold dollars to stablecoins in a one to one ratio. This is very interesting because stablecoins already are backed by dollars or “assets” in the same ratio. Where financial institutions hold one stablecoin, there will now be two dollars held, one with the bank and one with the stablecoin issuer. From a spending standpoint, this means that the bank will spend one dollar to get the stablecoin and hold a dollar in the reservation for the balance, ultimately tieing up two dollars to have access to this utility.
The other circumstance which may change this is if banks issue their own stablecoin on a private blockchain. This would not solve many problems unless multiple banks recognized the use of the stablecoin as private blockchains would not operate well on a national or international level.
An anonymous blockchain developer recently commented in a telegram group I am in about their perspective on banks, saying: “Banks are pre-historic economists”, which is a challenge to banks to not become that. Legendary statement. The ball is rolling now where financial institutions have the freedom to evolve on a national level using blockchain for their transactions.
Back in September 2019, Kraken exchange was granted the first special-purpose depository institution (SPDI) charter in Wyoming. This is the foundation for connecting cryptocurrencies from a financial institution and working towards having a money transmitter license. Yet, now with the OCC news, we may see similar regulation launch in other states across the entire USA.
To those who love the concept of permissionless finance and the utopian idea of banks no longer existing or who don’t find this news of value, consider the current needs of our economy. As the value of cryptocurrencies rises, larger value transactions will never be sent in a permissionless transaction as there is no guarantee of receiving products or services. For example, purchasing a vehicle or a home will need an intermediary or trust company to hold the funds and process payment upon delivery to the customer. This is the fundamental reason why banking and permissionless finance will co-exist in the new economy that we are defining right now. The OCC statement will allow regulations to layer out into other national and state laws, while for the first time encouraging innovation instead of stifling it.
For more information about the OCC and this content, please visit the links here: