Digital Dollar Stablecoins in the US Financial System

Rapid growth in digital dollar stablecoins has led to increased interest from traditional fintechs, banks and financial institutions in supporting digital currency. In recent weeks, Acting Head of the OCC at the US Treasury Department, Brian Brooks, issued guidance to national banks that they can custody crypto assets on behalf of customers, leading banks around the country to explore how they can leverage the benefits of this breakthrough technology.

All of this is part of a broader and rapid shift in the dialogue around digital dollars, the role of cryptocurrency and public blockchain networks, and how this technology transformation can be leveraged in the US and global financial system.

This coming week on the Money Movement we are honoured to host Comptroller Brooks, the leading regulator of banks in the United States, for a discussion on digital dollar stablecoins and their role in the US financial system.

Hello, I'm Jeremy Allaire and welcome to the Money Movement, a show where we explore the issues and ideas driving this brave new world of digital currency and blockchains. So this week, we're going to be diving into the role of digital dollars Stablecoins in the United States financial system. 2020 has been a really big year for digital dollars Stablecoins. [00:11:07][27.6]

We have seen a surge in their usage. [00:11:12][3.4]

[00:11:13] In particular, we've seen a surge in the issuance and usage of so-called regulated digital lour stablecoins such as USDC and others. We're walking into a time when the leading regulators, leading financial regulators in the world, the Financial Stability Board, have been setting regulatory policy and working towards regulatory policy around digital currency. And we have the backdrop of Libra on the horizon and attempting to and preparing to launch. Likewise, we're seeing just heightened interest and activity, especially from the largest fintech in the world, just an increasing amount of activity that's taking place in this space and around this space. And we are really just in an incredibly exciting time around Stablecoins digital currency right now. And so this week is is, I think, going to be a very special a very special episode. And we have an opportunity to talk with someone who is really at the forefront of thinking about Stablecoins in the US financial system and to dove into all of this and much, much more. We're very pleased to welcome a special guest, Comptroller Brian Brooks, currently serving as the acting head of the Office of the Comptroller of the Currency, the OCC for the U.S. Treasury Department, and someone who has spent decades working on major issues and innovations facing the financial system. So very pleased to welcome Brian to the show. We are waiting for Brian's audio and video to turn on. Bear with us for a moment. We have a zoom loading issue for Controller Brooks. [00:13:58][164.8]

[00:15:05] Here we go. Now, I got you. Hurray, I am. How are you? I'm really good. You missed an amazing introduction. [00:15:12][7.6]

[00:15:14] That was probably good for both of us. [00:15:15][1.1]

[00:15:17] Well, welcome. Super, super excited to have you here and talk about all of this today. Maybe we can just get started. I think it's always helpful for people to just hear a little bit about, you know, kind of tell us a little bit of how you kind of arrive where you are and your interest and focus on on on these issues as well. [00:15:37][20.3]

[00:15:38] Well, I really appreciate the opportunity to do that. And Jeremy, to join this podcast, I know there's been an illustrious list of prior speakers and a big audience you've got. So, first of all, thank you very much for having me and giving me this platform today. You know, when when people ask me, how did I first become interested in things like the future of money in tech generally in Stablecoins and payments and crypto in specific, for me, it all comes back to a period of time when I worked at Fannie Mae, which is a giant and really, really important company that moves very slowly, very important moves very slowly. And there was a famous story where the CEO of Fannie Mae and I went out to San Francisco for our very first fintech meeting. This was like an early 2016. I want to say maybe it was because like 15, but it was in that timeframe. And so we went out there to meet this particular fintech company. And it was supposed to be a day trip. But while we were flying out there, the storm of the century came into Washington, D.C. and it closed down the airport for five days. So we were stuck in the Bay Area for five days with no clothes, no place to stay and nothing to do. And so we thought, well, since we're here, the right thing to do would be for us to go ahead and network among the fintech crowd to find out what people are doing. And that's when we found out the many ways in which technology can radically improve speed and price access to traditional financial products and services. For example, you know, when we went out there, we were dealing with a mortgage cycle time that was basically 70 days from application to funding of the mortgage. What can happen in 70 days? That was a really terrible customer experience. People lost houses because it took so long to get a mortgage. Suddenly, we discover that there were these apps being built that would allow you to essentially access all of the customer's financial data without having to ask for any documents. And you cut the 70 days to 10. So that's where it all started, was realizing that as important as finance is, we had really been rooted in a lot of practices that were somewhere between 30 and 100 years old. And tech might help, you know, that you and I worked together at Coinbase. When I was at Coinbase, you were at Circle. We put together one of the most important stablecoins projects in the world. And, you know, that's just another version of the same thing. Yeah, dollars are important. The U.S. dollar is still hanging on as the global reserve currency, but technology features the use of a better set of transmission. Rails can make it faster and more attractive than its competitors. And so all of those things are wrapped up in the same thing. Traditional plants, important slow. We can make it better, faster, cheaper. It's kind of like the Six Million Dollar Man. All those. [00:18:12][153.2]

[00:18:13] That's. That's awesome. That's awesome. So, I mean, maybe that that leads us right into this discussion. So you've obviously been outspoken about the role and the potential of Stablecoins digital dollars stablecoins in the U.S. financial system. You've written about it. You've written OP Ed's and you've certainly talked about it. What is the role? I mean, is it what you just said? Is it is this is this fundamentally just a a a major payment system, innovation that is moving ahead and and the U.S. spending system to benefit from that? Or or how do you think about that at a really high level? [00:18:51][37.7]

[00:18:52] Well, you know, Jeremy, I think there are a lot of ways of thinking about Stablecoins. There's sort of a short term, a medium term and a long term way of thinking about how they can improve our our sort of system. But what I think about it in the first instance is it's an issue of competitiveness. So so, you know, when I talk about Stablecoins, what I sort of say is the dollar has been the reserve currency for a long period of time, not because it's necessarily better or easier to use or anything. It's the most liquid currency because of a set of historical anomalies that happened sometime between the end of World War Two in the mid 50s. And the world we live in isn't that world anymore. So the dollar is still the reserve currency, but only because we're still running on that history. The problem is the history is not likely to preserve our role as the reserve currency forever. And you see this and the fact that global central banks have been reducing their dollar holdings and diversifying away from the dollar every quarter. Going back now four, five, six years, this seems to be an inevitable trend. We're still the most important, but we're way less the most important than we used to be. And in a world competition, my view is that the dollar needs to transact more attractively than others. So if we're no more liquid than the Roman B or the euro or something, at some point in the future, we could still be the currency of choice. If the transactional mechanism for dollars is superior to the transaction like those of other kinds of things. And so I think it's that suite of issues that Stablecoins and Blockchains can ultimately help us with is to preserve the role of the dollar in the system. [00:20:25][93.9]

[00:20:26] Yeah, we sort of have this superstructure that God created, you know, definitely pre Internet. And we've sort of seen electronic money, you know, evolve into in different ways. And now you have the superstructure of the Internet. And you have, you know, obviously the dollar as as this preeminent reserve currency. And so it's sort of like, how do you turbocharge that? How do you put those together and just make get give the dollar? You know, the superpowers of the Internet, is that right? [00:20:53][27.2]

[00:20:54] Exactly. We we used to call it the programable dollar. You know, the the Stablecoins was to the dollar. What e-mail was to the letter? You're still typing. You're still sending information. Right. And it's faster. And you can attach videos, copyrightable people. And it's free. [00:21:06][12.4]

[00:21:07] All right. This is that the you know, the whole story of the Internet. Right. And sort of took things that were slow and expensive and proprietary and oftentimes tied down to one either company or country or whatever. And then it sort of made them ubiquitous, open, interoperable, global, free, frictionless, etc.. And so we have that with digital content. We have that with Digital Communications Week. We obviously need that with digital money as well. And I want one of the themes actually that I want to touch on is it's really around. That's sort of how this happens, how how how this becomes more important in the financial system. And we have a history of electronic money innovation. People sort of say, well, we already have electronic money. And that's true in that. You know, back when it became possible to send money between banks, an association of private sector actors got together and created something called Swift. And that was a open electronic messaging system that allowed banks to sort of let each other know what they owed each other. And that was electronic money. That was sort of the birth. But it was essentially a consortium of private sector actors that came up with, in that case, a centralized technology. And then later in the 70s, in the 80s, you know, the sort of I guess the electronic money that everyday people became accustomed to were like credit cards or debit cards is sort of I had this thing that wasn't wasn't a paper. It wasn't paper money, wasn't a paper check. It was this sort of electronic side kind of concept of money that people could could interact with. And and similarly, there, you know, you had you had a simply private sector actors coming together, forming associations and consortiums, defining technical standards for interoperability to kind of make it work. And, you know, the U.S. government didn't need to come in and build that. Right. That was something that the private sector could do. And those models sort of have have kind of gotten us these innovations in electronic money. And now we're the next logical place, which is Internet dollars and Internet currency. And it is the private sector going to play a similar role basically is the answer here. You can really see this at scale. Do we need these consortium models and associations and sort of self-regulatory frameworks that sort of work within the broader mandate of the financial system regulations? [00:23:23][136.2]

[00:23:25] Well, it will look so. So that's the inflection point that we're at right now. Right. Is is is this the kind of thing that should be built by the government or should we follow history and let the United States do what the United States does best, which is harness its strong market oriented, incentivize private sector to build something cool that everybody actually wants? What I would say is I think that one way of thinking about where this all goes is the idea that there are public goods that don't necessarily have to be delivered by the government. Right. So there's such a thing as public ownership that is different from government ownership. And Blockchains is the classic example of that. So, you know, imagine a world where you started in American history with one central authority in finance, which was the first bank of the United States, and then that was the the dominant central force in finance. Then decentralization was achieved in the 18th 60s when this agency that I work at was founded. Decentralization in the sense of we decided not to have one bank in the United States. We just had to have a network of privately owned national banks all across the country that would operate and interact with each other in a certain way. But there was now more than one of them and there were multiple of them in every state. And that was that was thought to be a good thing. It was more resilient, more accessible to people locally, etc cetera. Then, you know, as you describe, various kinds of money transmission and payments technologies came about which decentralized the system still further. Yeah, those banks started creating networks of various kinds, swift as an example. But think about the credit card networks where what became the Visa network is originally BankAmericard. It was a single entity. Right. And then they had the open source did in those happen. The what I always find puzzling when we talk. This is why, given that history, people now believe that the payments system is a government service. It's definitely a public good in the economic sense of there are benefits created by it that cannot be fully captured by the owners. So in that sense, it is a public good. But why do we think has to be owned by the government when none of the things we just described were ever owned by the government? My personal view is the ultimate public ownership of the payment rails is when you have a network like the Internet of interconnected institutions and computers that are maintaining ledgers and allowing direct person to person transaction. So as you said at the beginning, the Internet's the classic example of that. And so I think we're way down the path of decentralization. I think we're now maybe close to the point where we will achieve ultimate decentralization. We've been on this journey for 200 years. [00:25:54][148.8]

[00:25:54] Yeah. And this is parallel lives and a lot of industries. Right? This is yeah. This is sort of the financial industries has a history of this and it's going further in some respects. And pop public blockchains are by definition, public goods. [00:26:07][12.7]

[00:26:07] They exist for the whole world and not just for moving money for all kinds of interesting proofs of ownership and record keeping and billions of other applications. [00:26:16][9.1]

[00:26:17] Right. And yet public doesn't mean government. Right. It's something that is spontaneously springing up in a market. [00:26:21][4.8]

[00:26:22] Right. And it is public and that the intellectual property is open and accessible to anyone. It's open source. [00:26:28][5.5]

[00:26:29] People can freely contribute the standards in the communities around them. People can gather to build those. So we we've certainly seen that work in many spheres. And it does feel like with public chains and things like Stablecoins, we're starting to see that happening in a nation way in the financial system here. I guess. And one other question specifically on Stablecoins. I think, you know, one of the things that is important to to these today, at least in the nascent markets that they're serving today, is these are fully reserved assets, right? [00:27:05][35.9]

[00:27:05] These are fully reserved. And that's really important. Right. It's not fractional reserve money. The reserves are not lent out 10 times, as you would say, with traditional commercial bank money. [00:27:19][13.8]

[00:27:20] You know, if Stablecoins grow, if these sort of digital dollars that are full reserve, that have these sort of safety and soundness mechanisms behind them, maybe those eventually become more explicit from a regulatory perspective. But does that actually create a shift in and ultimately kind of risk management in the banking sector? Does that ultimately, if if more and more transactions are in these digital cash, digital dollar type of things? Does that change how people think about even things like Basel three requirements? I know, like in China with DCP. [00:27:54][34.0]

[00:27:56] When a when a bank converts their electronic money into DCP, you know that DCP, DCP, that they can't go fractional lend on it. [00:28:07][10.6]

[00:28:07] It's considered like M0. Right. It sort of has that state. So is there something there over the over perhaps over the long term that has to be thought about in this? [00:28:17][9.3]

[00:28:18] Yeah. Well, so so let's unpack that just for a minute, because there's there's a lot in that question. So let me start with the concept of the stablecoins are fully reserved and everything. So they should be. And, you know, the most credible recent projects have been. But we all know from some slightly less recent experience, if you went back a couple of years, there have been Stablecoins products that weren't actually fully reserved. [00:28:41][23.5]

[00:28:42] And so one of the things I think that we in the regulatory community need to do is to provide some clarity about what are the reserve and audit expectations for these kinds of projects. There are plenty of analogies out there that would help us do that. You know, there's the analogy of our experience with prepaid cards, with traveler's checks, with other kinds of money transmission incidents. [00:28:59][17.0]

[00:29:00] But the first thing I would say is we do need to say something about that to give users confidence that if they're trading at a Stablecoins, they're no less likely to lose their money than if they have, you know, a Sports Authority card or some other kind of some prepaid debit card that they can use. And I think that's a place where we can create some confidence. I think there's there's also another basic issue that, you know, everybody in this community needs to be thinking about it and is thinking about. And that is when you're transacting on a blockchains as opposed to through the bank built networks of swith and AC age, etc.. There are issues about customer identification and BSA, AML, you know, bank secrecy or any money laundering issues that have to be resolved and are being debated in the government as we speak. So you have to take those seriously, but you also have to take seriously the demand-side case for direct person to person value transfer and balance those concerns to get to a place that has credibility with the public and credibility. You know that it's not principally being used for for illicit purposes. And I don't think it is. But those are things you need to talk about. In the longer term, we know what I see happening here is, first of all, that having a Internet native payment instrument is kind of inevitable. When I say Internet native, you know, the problem with the Internet today is there are a lot of cool apps on your phone that you can use to transact value. But because they're not Internet native, they're not interoperable with each stack. For example, Jeremy, if you have cell on your phone and I have Venmo and that's all we have, we can't send money to each other. It's a weird closed loop, even if we both have Zel. We are still depending on the clearing bank, clearing that transaction with each other versus in a fully open system, you know, kind of like in the way that my Gmail and your Hotmail can communicate for each other as S.A.G. or HDD shock events. [00:30:49][109.6]

[00:30:50] Actually, yes. [00:30:51][0.6]

[00:30:51] And the way that we know this is what's inevitably coming is look at the major payment systems that have arisen just in the last 10 years. So take strike as an example. There's a reason why most Internet startups choose to use Stripe as their payments platform as opposed to using a bank as their direct payments vendor. And that is because Stripe is an Internet native. Payment processor. They know what they're about. They're direct. They exist in cyberspace. They're not software that is grafted onto those protocols. And if that's the case with payment processing, it seems to be inevitable that Internet native money would be the fastest and most ease of use way of transmitting value across those networks. [00:31:30][39.0]

[00:31:32] Certainly concur on on all of that, actually. I mean, maybe that's a good Segway into talking a little bit about, like, what are the fundamental innovations here with Internet native money? Like we have these you know, we have cash, right? [00:31:44][11.7]

[00:31:44] We have these sort of existing forms of bank electronic money and to varying degrees, like these closed loop, you know, digital payment applications like their closed loop. There are sort of a version of kind of bank electronic money. But you know that the you know, on a number of different fronts. Right. The power here is really different. Right. So just in terms of of of interoperability, you just talked about that this idea that, you know, any digital wallet can pay any other digital wallet kind of kind of anywhere. It is a big one. But, you know, just speed efficiency. What are your thoughts? And some of them like fundamentally utility value improvements that that come from this shift towards digital da stablecoins? [00:32:31][47.0]

[00:32:32] Well, I mean, there are a lot you can think of, but I'll just I'll just take a couple, which I think are relevant. So No. One is if you take the fact, which is a fact many people are not aware of, something like 70 percent of loan defaults are not caused by inability to pay. They're caused by forgetfulness or they're caused by somebody who's on vacation. And they didn't come back until after the due date had passed. One of the features of Stablecoins is because that they're programable. So just like with your email, I can send an email to you and I can market for future delivery of the state of time. The computer will release it. Imagine a world in which you never had to not only write a check, but even make a payment ever again. All of your debits simply transacted on the Internet at a state and time and place and could be drawn on on a given day. So imagine if you could just manage downloading. It certainly improves financial. By virtue, it improves financial health for it for sure. I mean, that's definitely one one way of that happening. Another really interesting way that I think about it is you may have seen we recently chartered a new bank here at the OCC called Varro Bank. Yeah. And one of the things that Varro does for their customers. But imagine if this was universal was they allow customers to receive their paycheck funds 48 hours before the funds hit. Well, in a world of programmability, if I could simply ping the system and ascertain that you have a paycheck coming in to day ends and watching shows me that it's one program to release that on that day, then I as your bank, would be much more comfortable going ahead and giving you access to those funds today. It wouldn't have to just be in a bank. But anyway. Yeah. So the programmability feature, the instantaneous settlement features. All of those things would be would be, I think, game changers. But to me, what it really comes down to is the idea of Internet native payments. Right. The Internet native processors have literally millions of customers who are merchants and other kinds of businesses doing business on the web. If you had a native payment system for that, they could transact globally. That could translate rather instantly. That's always going to be better than the current system, which has time delays, chargeback rules and other kinds of things. Quiddity, enhancement alone. Is it introduced to the economy? [00:34:34][122.2]

[00:34:35] Yes. So any person, any business kind of settling a transaction with a counterparty in second wave right now with with with very high levels of security and with, you know, with sort of third generation blockchains, we're now seeing transaction costs that can really get, you know, approaching zero effectively in the same way that we don't think about how much it costs to send an email. We don't think about a cross-border email. [00:34:56][21.0]

[00:34:57] We just sort of we had guys like Frank Applications platform that everyone just kind of connects to exaggerate. [00:35:02][5.0]

[00:35:03] And I would just comment. Jeremy, put these things in the public's mind, they need to evolve a little bit for the public to sort of understand what the current state of technology is. There was a time period, you know, if you remember where with cell phones, nobody wanted to use them because taking an incoming call costs the incoming recipients a minute. It seems ridiculous, right? But in the early days, that's how it worked. And then the pricing models settle down and the technology improved, etc.. Yeah. [00:35:26][23.0]

[00:35:27] We're certainly continuing to see innovation happen on the technology front. And I think, you know, the next couple months be pretty interesting on that on that level. One of the things that actually which you mentioned, I think is about building trust in this. There's obviously like to reserve and audit and, you know, kind of the compliance requirements. I have to get wrapped around this. But I think one of the really critical things that I think is a misunderstanding but is really important certainly for four banks and financial institutions, which is sort of the traceability and the auditability of this kind of Internet native money. And, you know, theoretically, you know, while these can be kind of that, you know, secure private transactions, there's also an incredible amount of auditability here, whether that's from a financial audit perspective or a law enforcement audit perspective or whatnot. You know, as you know, the key regulator in the United States that cares. It clearly cares a lot about these issues. How do you think about those issues, traceability, auditability, the ability for law enforcement to do their job? [00:36:32][65.1]

[00:36:34] Well, I think these are complicated issues that have to be taken seriously, by which I don't mean that there's only one issue that matters here. Right. So I begin with the idea that money laundering and terrorism financing are unacceptable in our society and we're in a world of elevated risk. I think we've known that since 9/11. And I think right now is about as unstable a period as any of us remember since 9/11. So those are those are important issues that governments have to grapple with. And as I say, we are grappling with it. My colleagues at FINSA, at the Treasury Department and other places are looking very seriously at what is the right way to allow this technology to grow without compromising those kinds of legitimate sort of public safety, national security kinds of concerns. I can't overemphasize that at the same time. I think it's really clear in a free society that there is some amount of privacy, including financial privacy. That is an important value. I sort of think about the prevalence of secure text messaging apps. There's a reason people use WhatsApp. You know, it's encrypted into what? Why do we allow that? You know, it's hard for the postal inspectors to read your WhatsApp messages. And yet, as a society, I think there's a broad consensus that it's OK for people to have a sphere of privacy in that world. Now, if you take the iPhone, you know, which was used by the San Bernardino shooters a few years ago to do various things, that was a classic example of a an absolutely abhorrent criminal act that caused lots of death and also had one of the iconic American companies refused to unencrypted the phone because their belief is that their whole mission is to provide privacy. And, you know, the theory that hard facts make bad law. They didn't want that example to tear down this privacy structure that they had built. So I think we have to ask really hard and value questions as a country about how do we balance these concerns, thinking that we can have private wall-to-wall transactions across Blockchains that can't be traced by cipher trace or elliptic or whatever ever is probably a nonstarter in a world where we have real enemies abroad that seek to use, you know, financial services against us. On the other hand, telling Americans that all of their private transactions have to be surveilled by the government at all times is probably not also a winning message. So we need to find a balance there. I don't know what the balance is, but I know that we're having discussions and we're going to figure something out. And we'll evolve over time. [00:38:51][137.0]

[00:38:51] And this is global, right? Open societies, you know, freedom of communication, a lot of different dimensions here that that have an overlay, obviously, on the financial system as well. For sure. So, you know, as this sort of gets more real for the you know, the established financial sector, obviously, you know, banks are new to crypto. Your recent guidance has certainly opened the door for banks as custodians, as payment infrastructure providers, sort of to begin to open up to this kind of fundamental innovation. And I know you have a front row seat on this for the last seven years, in the past, and certainly very much still, there's been a lot of focus within the banking sector on risking compliance issues. You know, as as banks weighed into this, you know, what are the core risk and compliance issues that banks need to be looking at as they begin to add these kinds of rails, these this kind of this kind of digital asset infrastructure or other things? What are the major issues for them to think about? [00:39:52][61.3]

[00:39:53] Well, it's so so there there are a number of issues. But I would start with the obvious issue of BSA, AML, which we talked about. That's always going to be the most important thing in any kind of a public. Know publicly accessible money transmission networks, so. So figuring that out, getting that right is always going to be, I think, job number one. But there are a bunch of other things, too. Go. So banks are used to managing the technology and operational risk associated with aviation. SWIFT Sure. And by the way, those risks are not trivial. I mean, the percentage of chargebacks and fraud and other errors on those networks is shockingly high. So it's not like banks are not used to that risk or don't have practices for managing it. [00:40:30][37.0]

[00:40:30] Connected to Blockchains is a little bit different because on a blockchains you can't get the money back, right? So once it's gone, it's gone. Right. [00:40:38][7.3]

[00:40:38] Or if you if you can't get the money back, it's only through like a 51 percent attack or something, which is even worse than the money being. Somebody can rewrite the ledger if they have enough computing power. So if we sent certain kinds of blockchains. So. So those are things that we need to think about technology and operational risk for sure. And then, of course, there's the issue at a broader level. And this is not for an individual bank to manage, but it is something the system has to think about. Which comes back to something you said earlier. It's sort of about money supply and monetary policy. And how do we think about these digitized assets? Yes, they're fully reserved. So the binding constraint is the amount of one that the Fed puts into the economy. And that is the velocity of money gets faster and faster. How confident can we be at any given moment in time, those one to one relationships between reserves and stablecoins are being maintained. And if they're not being maintained, what does it do to the actual money supply? And know this money supply FX interest rates that affects inflation and other kinds of things. We need to think about all of those things. So I think there are a number of things to manage through. But what I come back to, Jeremy, is for people who say, well, that's a lot of risk. So I don't think we can manage through it. What I say is it's inevitable that we have to manage through it in America, in a market democracy, the consumer rules. And when you get to a place where 40 or 50 million people want something, they're going to have it. And it's only an issue of us doing the hard work to figure out what the work is for. I always come back to the Hoover example. Every municipal government America wanted to ban Uber. And the only reason they failed is because too many tens of millions of Americans said no, no to to get answers. [00:42:12][94.1]

[00:42:14] But, you know, I've made this point and actually it leads into is something that you touched on earlier. I want to I want to bring back to the forefront of the conversation a little bit, which is the geopolitical dimensions of some of this. And, you know, I think one of the things that a lot of people have noted is that in a world of Internet, native money, of digital, our stablecoins, you know, in many ways, you know, people all around the world can kind of vote with their smartphone, what economic system they want to participate in. They can download a digital wallet from an app store and they can start sending and receiving Stablecoins and digital currency in that way. And you know what? We're gonna see a lot of people and a lot of places say voting. I'd like to be know part of the dollar economy. That happens already informally and formally. And there's dollar banking in lots of countries. And there's obviously a huge informal economy of cash and dollars and everywhere. And there's 500 billion, you know, physical dollars shipped out each year into the world. But, you know, the this phenomenon, you know, it sort of does have these sort of geopolitical dimensions to it. [00:43:20][66.3]

[00:43:20] You have, you know, China launching Internet native money. [00:43:25][4.3]

[00:43:26] And as I've pointed out, I've had people who are from the PBS see on the show here talking about it. Yeah. You will have the ability for anyone with a digital wallet in the world, theoretically, to settle a transaction directly with the People's Bank of China in their particular model or perhaps settle it through another digital wallet app. But the ability for, you know, digital currency to exist where the Internet exists, it does in some ways increase the competition for reserve currencies and how they're used in business around the world. [00:43:59][33.4]

[00:44:00] And this is you know, this is a geopolitical issue. It's not just a payment system, innovation issue or an efficiency issue. And, you know, we're seeing countries such as China making digital currency and blockchains technology a core strategic focus. But I think here in the United States, the position of the government could be viewed as neutral at best. And they're certainly not, at least not yet, any kind of national policy or agenda on leading in this space. There's certainly a lot of private sector activity. Many of the leading private sector actors in this industry are here. There are many countries around the world as well. But, you know, is there is there something more to do here? How do we get there? How can the United States lead? [00:44:39][39.2]

[00:44:40] Well, so so, look, these are great questions. I wouldn't write off the United States in this area by any means, but I would definitely acknowledge that we are slow off the blocks and we don't have a single strategy that has been endorsed at the highest level. But as you know, there are a number of people in senior roles in the administration and elsewhere who have really focused on this and more over time. Yeah. You, chairman, has made it a public mission of theirs to grow America's leadership in the space. You have a newly reconfirmed OCC very focused agenda. Yeah, chief technology officer of the United States who came out of Silicon Valley and is a crypto guy. There are a lot of people more realized in the government who are very focused on this thing. I think there's both an optimistic, pessimistic view of the future. On the question you're raising and the optimistic view would say, hey, it's actually great that China is doing what they're doing and what we're doing in the private sector and us doing what we're doing. Because once you have stablecoins and markets can have more of an influence in which currency they select, you put. Right. Which economics doesn't they want to participate in. It'll be harder for authoritarian regimes to prop up their currency artificially as 10 years, you know, it'll be way easier for people to decide what their currency is really worth. It's the sort of Morgan backed down, if that's the right thing. So bringing those market forces to bear has to be a good thing. The other optimistic part of this future also is in a world where, like foreign exchange is a significant unit of international trade, like just the need to change dollars into yen or whatever to buy or sell commodities in Japan is itself like a seven percent tax on the transaction. And imagine if you can take all of that out because the yen, you're not Catholic. I've got a stablecoins, which is a representation of money that is now at the Bank of Japan. But the money is not leaving the Bank of Japan. So there is no board. That's the optimistic view. And a pessimistic view is this, which is in a world where the dollar has been the reserve currency and is the price. It's the it's the currency in which almost all global commodities are stated. Americans get an inherent discount every time we buy things on the on the bull markets. Other countries know this. They think it's unfair. It might actually be unfair. And so in a world where there are there's that much economic pressure to use other currencies than dollars, the only way to maintain our primacy is to add feature. Right. [00:47:11][151.2]

[00:47:11] We can't lower the price then at least we can add features and deliver value for money here, such that it's fair for people to trade in dollars because, hey, it's faster, it's more liquid, whatever. But in the current world where we're the only country that doesn't have to change our currency to buy oil in Saudi Arabia, even the Saudis have to change money into oil, into dollars to buy their own oil. That can't last forever. And so we need to envision a future where we're being competitive as opposed to complacent. [00:47:39][27.3]

[00:47:40] Yeah, well, lots of lots of room for four for U.S. led innovation here on many fronts. Last last question here. You know, you you have seen a lot of evolution in this space. [00:47:54][14.4]

[00:47:56] You see the pace of change. [00:47:57][1.1]

[00:47:58] You see kind of the fundamentals of the of the transformation that's possible. You know, just for a moment, step back. Where do you see all of this in in three to five years? And how in that time frame, how can this lead to very durable improvements in the U.S. financial system? [00:48:15][17.8]

[00:48:18] Well, there's a there's a three to five years is tricky. If you'd said 30 years. [00:48:22][3.9]

[00:48:22] I think if more accurate television, I think three to five years has a lot of dependencies on does our economy reopen in the next six months? What happens with the presidential election? What happens with China on various immediate issues of austerity doing so? What? But what I would say is if you kind of assume a steady state on all of those things, what I think will happen is three to five years from now, I think banks will be connecting to Blockchains the same way that they connect to SWIFT and ACG, other networks. Right. Once they do that, the nature of banking will begin to change. Because while banking will always, I believe, be the key on ramp and the key value service provider people, people's financial services lives, they will not be the bottleneck of the transaction of financial services. Instead, they will be nodes on a network along with a lot of other nodes, many of which won't be banks. And that will really change, I think, and allow banks to focus on what they're best at. And what we really need them to do. So I think that will happen for sure. I do think that in a world of geopolitical instability, crypto assets in general will grow and become a more significant part of people's lives. That's one of the reasons why I believe Bitcoin prices are going up in an environment of perceived instability. I start to believe that the sovereigns or maybe not as trustworthy as they once were. Bitcoin is not generated by any sovereign. Maybe that's the thing to hang onto. So you'll see more of that. But over time, you know, the world tends toward more sort of stability. Right. Things reach equilibrium. And so since decentralized things are more stable than centralized things, I would predict that the movement that started 200 years ago with the first bank, the United States, a movement toward more decentralization will continue. Banks will adapt to that. They will add value to that. And. The war will go on, but it will go on into a cheaper, faster, more accessible way than before. And that'll be good work. People love you, so they'll be like you. [00:50:11][108.7]

[00:50:12] It's awesome. The Money Movement continues. I'm awesome, Brian. It was awesome to have you on. Thank you so much. And obviously hope to see you again soon. Jeremy, a real pleasure. Thanks for having me. Absolutely. So a lot to process there. Know clearly we are at an inflection point. This rise of digital da stablecoins appears to be ready to cross the chasm from the early adopter phase to the end the disruptive innovator phase into more of the mainstream acceptance phase in the years to come. We're going to be chronicling all of it here on The Money Movement. On that note, next week we're going to do a deep dove into the power of Stablecoins as a payment and settlement medium in purely digital tokenized and securities and financial contracts. We've always seen Stablecoins on public chains as a kind of base layer and a complete condition to the very big idea of tokenized assets and finance contracts. And next week, we're gonna be joined by Michael Carpentier, who's CEO and co-founder of a startup called Vesta Equity, who are building a marketplace for tokenized, home equity making residential real estate more liquid, creating new investment opportunities that remove intermediaries. Introduce that introduce so much cost and friction into real estate finance, something that we touched on earlier here today. And we're also going to be joined by SECURITIZE, CEO and co-founder of Our Lives, Tamminga, whose firm is at the forefront of enabling companies to issue digital securities. We're going to deep dove into the cutting edge world of stablecoins and digital securities. Until next time. Stay well and stay safe and stay informed. Thank you. [00:50:12][0.0]


Brian Brooks
Acting Comptroller of the Currency OCC