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.

Listen to this episode with our very special guest, Comptroller Brooks, to learn about the role of digital dollar stablecoins in the U.S. financial system.

Jeremy: Hello, I'm Jeremy Allaire. Welcome to the Money Movement, a show where we explore the issues and ideas driving this brave new world of digital currency and blockchains. This week, we're going to be diving into the role of digital dollar stablecoins in the United States' financial system. 2020 has been a really big year for digital dollar stablecoins. We have seen a surge in their usage. In particular, we've seen a surge in the issuance and usage of so-called regulated digital dollar 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. 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 fintechs in the world, just an increasing amount of activity that's taking place in this space and around this space.

We are really just in an incredibly exciting time around stablecoins and digital currency right now. This week is I think going to be a very special episode. We have an opportunity to talk with someone who is really at the forefront of thinking about stablecoins in the US's financial system. To dive into all 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 US Treasury Department, and someone who has spent decades working on major issues and innovations facing the financial system.

Very pleased to welcome Brian to the show. Bear with us for a moment. We have a Zoom loading issue for Comptroller Brooks.

Brian Brooks: Now I got you.

Jeremy: Hurray. Welcome, Brian.

Brian: How are you?

Jeremy: I'm really good. You missed an amazing introduction.

Brian: That's probably good for both of us.

Jeremy: Welcome. Super excited to have you here and talk about all this today. Maybe we can just get started. I think it's always helpful for people to just hear a little bit about you. Tell us a little bit of how you arrived where you are and your interest and focus on these issues as well.

Brian: 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. First of all, thank you very much for having me and giving me this platform today.

Jeremy: You're welcome.

Brian: When people ask me, how did I first become interested in things like the future of money, fintech generally and 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. 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 in early 2016, I want to say, maybe it was '15 but it was in that timeframe.

We went out there to meet this particular finteh 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, DC and it closed down the airport for five days. We were stuck in the Bay Area for five days with no clothes, no place to stay, and nothing to do. 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 were doing.

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, when we went out there, we were dealing with a mortgage cycle time that was basically 70 days from the application to funding of the mortgage. A lot 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 discovered that there were these apps being built that would allow you to essentially access all of a customer's financial data without having to ask them for any documents and you can cut the 70 days to 10. That's where it all started, with 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 may help. You know that you and I worked together at Coinbase.

When I was at Coinbase, you were at Circle and we put together one of the most important stable coin projects in the world. That's just another version of the same thing. Dollars are important, the US Dollars 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. All of those things are wrapped up in the same thing. Traditional finance is important, slow. We can make it better, faster, cheaper. It's like the $6 million man, all of those things.

Jeremy: That's awesome. Maybe that leads us right into this discussion. You've obviously been outspoken about the role and the potential of stablecoins, digital dollar stablecoins in the US financial system, you've written about it, you've written op-eds, and you've certainly talked about it. What is the role? Is it what you just said? Is this fundamentally just a major payment system innovation that is moving ahead and the US financial system should benefit from that? How do you think about that at a really high level?

Brian: Well, Jeremy, I think there are a lot of ways of thinking about stablecoins. There's a short-term and a medium-term and a long-term way of thinking about how they can improve our system. What I think about it in the first instance is there's an issue of competitiveness. When I talk about stablecoins, what I 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 II and the mid-50s. The world we live in isn't that world anymore. 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.

You see this in the fact that global central banks have been reducing their dollar holdings and diversifying away from the dollar every quarter going back now four or 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. In a world of competition, my view is that the dollar needs to transact more attractively than others.

If we're no more liquid than the renminbi 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 mechanism of other kinds of things. I think it's that suite of issues that stablecoins and blockchain can ultimately help us with is to preserve the role of the dollar in the system.

Jeremy: We have this superstructure that God created definitely pre-internet. We should have seen electronic money evolve in different ways and now you have the superstructure of the internet and you have obviously the dollar as this preeminent reserve currency. It's how do you turbocharge that? How do you put those together and just give the dollar the superpowers of the internet?

Brian: That's right. Exactly. We used to call it the programmable dollar. The stablecoin was to the dollar what email was to the letter. You're still typing, you're still sending information, and it's faster and you can attach videos, copy multiple people and it's free.

Jeremy: This is the whole story of the internet. It took things that were slow and expensive and proprietary and oftentimes tied down to one company or country or whatever, and then it made them ubiquitous, open, interoperable, global, free, frictionless, et cetera. We have that with digital content, we have that with digital communications, we obviously need that with digital money as well.

One of the themes actually that I want to touch on is really around how this happens. How this becomes more important in the financial system. We have a history of electronic money innovation. People say, "Well, we already have electronic money." That's true in that back when it became possible to send money between banks, an association of private sector actors got together and created something called Swift.

That was an electronic messaging system that allowed banks to let each other know what they owed each other. That was electronic money. That was 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 I guess, the electronic money that every day people became accustomed to were like credit cards or debit cards. It was I had this thing that it wasn't paper money, it wasn't a paper check, it was this electronified concept of money that people could interact with. Similarly, there you had essentially private check for actors coming together, forming associations and consortiums, defining technical standards for interoperability to make it work. The US government didn't need to come in and build that.

That was something that the private sector could do. Those models have gotten us these innovations and electronic money. Now we're the next logical place, which is internet dollars and internet currency. Is the private sector going to play a similar role, basically? Is the answer here to really see this at scale, do we need these consortium models and associations and self-regulatory frameworks that work within the broader mandate of the financial system regulations?

Brian: That's the inflection point that we're at right now, is is this the 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, incentivized 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.

There's such a thing as public ownership that is different from government ownership. Blockchain is the classic example of that. 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 that was the dominant central force in finance. Then decentralization was achieved in the 1860s when this agency that I work at was founded.

Decentralization in the sense of, we decided not to have one bank of the United States, we decided 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. There was now more than one of them, and there were multiple of them in every state and that was thought to be a good thing. It was more resilient, more accessible to people locally, et cetera.

Then, as you described various kinds of money transmission and payment technologies came about which decentralized the system so further. Those banks started creating networks of various kinds swift as an example. Think about the credit card networks where what became the VISA network was originally BankAmericardbank Americ card. It was a single entity, and then they open-sourced it and those happened.

What I always find puzzling when we talk about 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. In that sense, it is a public good. Why do we think it has to be owned by the government when none of the things we've 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 transactions. As you said at the beginning, the Internet's the classic example of that. I think we're way down the path of decentralization. I think we're now may be close to the point where we will achieve ultimate decentralization. We've been on this journey for 200 years.

Jeremy: This is parallel [unintelligible 00:13:39] in a lot of industries. The financial industry has a history of this and it's going further in some respects and public blockchains are by definition public goods. They exist for the whole world and not just for moving money, for all kinds of interesting proofs of ownership and record-keeping and zillions of other applications.

Brian: Yet public doesn't mean government.

Jeremy: Absolutely.

Brian: It's something that can spontaneously spring up in a market.

Jeremy: Right. It is public in that the intellectual property is open and accessible to anyone, it's open source. People can freely contribute the standards and the communities around them. People can gather to build those. We've certainly seen that work in many spheres and it does feel like with public change and things like stablecoins, we're starting to see that happening in a nascent way in the financial system here.

One other, question specifically on stablecoins. I think one of the things that is important to these today, at least in the nascent markets that they're serving today is, these are fully reserved assets. These are fully reserved and that's really important. It's not fractional reserve money, the reserves are not lent out 10 times as you would say with traditional commercial bank money.

If stablecoins grow, if these digital dollars that are full reserve, that have these safety and soundness mechanisms behind them, maybe those eventually become more explicit from a regulatory perspective, but does that actually create a shift in ultimately risk management in the banking sector? Does that ultimately, 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 III requirements?

I know in China with DCEP, when a bank converts their electronic into DCEP, that DCEP, they can't go fractional lend on it. It's considered M-zero. It has that state. Is there something there over perhaps over the long term that has to be thought about in this?

Brian: Yes. Well, let's unpack that just for a minute, because there's a lot in that question. Let me start with the concept that stablecoins are fully reserved and everything. They should be and the most credible recent projects have been, but all know from some slightly less recent experience, if you went back a couple of years, there have been stable coin projects that weren't actually fully reserved.

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. There's the analogy of our experience with prepaid cards, with travel checks, with other kinds of money transmission instruments.

The first thing I would say is we do need to say something about that to give users confidence, that if they're trading in a stable coin, they're no less likely to lose their money than if they have a sports authority card or some other some prepaid debit card that they can use. I think that's a place where we can create some confidence. I think there's also another basic issue that everybody in this community needs to be thinking about and is thinking about, that is when you're transacting on a blockchain as opposed to through the bank built networks of Swift and ACH, et cetera, there are issues about customer identification and BSAAML, Bank Secrecy Act Any Money Laundering issues that have to be resolved and are being debated in the government as we speak.

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 aincredibility that it's not principally being used for illicit purposes. I don't think it is, but those are things you need to talk about. In the longer term, what I see happening here is, first of all, that having an internet native payment instrument is inevitable.

When I say internet native, 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 other. For example, Jeremy, if you have Zelle on your phone and I have Venmo and that's all that we have, we can't send money to each other. It's a weird closed loop.

Even if we both have Zelle, we are still depending on the clearing bank clearing that transaction with each other versus in a fully open system, like in the way that my Gmail and your Hotmail can communicate with each other--

Jeremy: SMTP or HTTP.

[crosstalk]

Brian: Exactly. 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. Take Stripe 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. 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 a software that is engrafted onto those protocols. 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.

Jeremy: Certainly concur on all that actually. Maybe that's a good segue into talking a little bit about what are the fundamental innovations here with internet native money. We have cash. We have these existing forms of bank electronic money and to varying degrees, these closed-loop digital payment applications, they're closed loop. They're a version of bank electronic money, but on a number of different fronts. The power here is really different.

In terms of interoperability, you just talked about that, this idea that any digital wallet can pay any other digital wallet anywhere is a big one, but jus speed efficiency, what are your thoughts on some of the fundamental utility value improvements that come from this shift towards digital dollar stablecoins?

Brian: Well, there are a lot that you can think of, but I'll just take a couple which I think are relevant. One is if you take the fact, which is a fact many people are not aware of, something like 70% of loan defaults are not caused by inability to pay. They're caused by forgetfulness or they're caused by somebody's on vacation and they didn't come back until after the due date had passed. One of the features of stablecoins is because of the internet, they are programmable. Just like with your email, I can send an email to you and I can mark for future delivery at a stated time and a computer will release it.

Imagine a world in which you never have to not only write a check but even make a payment ever again and all of your debit is simply transacted on the internet at a stated time and place and could be drawn on a given day. Imagine if you could just manage, download [unintelligible 00:21:01]

[crosstalk]

Jeremy: Improves financial health by virtue of--

Brian: Improves financial health, for sure. That's definitely 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 Varo Bank. One of the things that Varo does for their customers, but imagine that this was universal, was they allow customers to receive their patron 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 two days and the blockchain shows me that it's pre-programmed 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 Varo Bank, but any bank would do that.

The programmability feature, the instantaneous settlement features, all of those things would be, I think game-changers. To me, what it really comes down to is the idea of internet native payments, the internet native processors have literally millions of customers who are merchants and other kinds of businesses doing business on the web. If you a native payment system for that could transact globally, that could transact instantly that's always going to be better than the current system which has time delays, chargeback risks, and other kinds of things. The liquidity enhancement alone is a huge juice to the economy.

Jeremy: Any person, any business settling a transaction with a counterparty in second with very high levels of security and with third-generation blockchains we're now seeing transaction costs that can really approaching zero, effectively, in the same way, we don't think about how much it costs to send an email. We don't think about a cross-border email. We have this free communications platform that everyone just connects to.

Brian: Exactly. I would just comment, Jeremy, that these things, in the public's mind, they need to evolve a little bit for the public to understand what the current state of technology is. There was a time period, if you remember, where with cell phones nobody wanted to use them because taking an incoming call costs the incoming recipient dollar a minute. That seems ridiculous, but in the early days that's how it worked, and then the pricing model settled down and the technology improved, et cetera.

Jeremy: We're certainly continuing to see innovation happen on the technology front and I think the next call months will be pretty interesting on that level. One of the things, which you mentioned, I think, is about building trust in this. There's obviously the reserve and audit and the compliance requirements that have to get wrapped around this. I think one of the really critical things that I think is a misunderstanding but is really important certainly for banks and financial institutions, which is the traceability and the auditability of this internet native money.

Theoretically, while these can be 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 of, or whatnot. As a key regulator in the United States that 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?

Brian: 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. 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. Those are important issues that governments have to grapple with.

As I say, we, we are grappling with it. My colleagues at [unintelligible 00:24:45] 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 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 think about the prevalence of secure text messaging apps. There's a reason people use WhatsApp. It's encrypted end-to-end. Why do we allow that? It's hard for the postal inspectors to read your WhatsApp message, and yet as a society, I think there's a broad consensus that it's okay for people to have a sphere of privacy in that world.

If you take the iPhone, which was used by the San Bernardino shooters a few years ago to do various things, that was a classic example of an absolutely abhorrent criminal act that caused lots of death and also had one of the con American companies refuse to unencrypt the phone because their belief is that their whole mission is to provide privacy on theory that hard facts make bad law. They didn't want that example to tear down this privacy structure that they had built.

I think we have to ask really hard value questions as a country about how do we balance these concerns. Thinking that we can have private wallet-to-wallet transactions across blockchains that can't be traced by cipher trace or elliptic or whatever ever is probably a non-starter in a world where we have real enemies abroad that would seek to use 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. 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 will evolve over time.

Jeremy: This is global. Open societies, freedom and communication, a lot of different dimensions here that have an overlay, obviously, on the financial system as well for sure. As as this gets more real for the established financial sector, obviously, banks are new to crypto. Your recent guidance has certainly opened the door for banks as custodians, as payment infrastructure providers to begin to open up to this fundamental innovation.

I know front you have 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 bank and sector on risk and compliance issues. As banks weighed into this, what are the core risk and compliance issues that banks need to be looking at as they begin to add these kinds of rails, this kind of digital asset infrastructure, or other things, what are the major issues for them to think about?

Brian: Well, so there are a number of issues, but I would start with the obvious issue of BSA, AML, which we talked about. That that's always going to be the most important thing in any kind of a publicly accessible money transmission network. Figuring that out and getting that right is always going to be, I think, job number one, but there are a bunch of other things too. Banks are used to managing the technology and operational risk associated with ACH and Swift.

By the way, those risks are not trivial. The percentage of chargebacks and fraud and other errors on those networks is shockingly high. It's not like banks are not used to that risk or don't have practices for managing it, but connecting to blockchains is a little bit different because on a blockchain, you can't get the money back. Once it's gone, it's gone, or if you can get the money back, it's only through like a 51% attack or something which is even worse than the money being gone.

Somebody can rewrite the ledger if they have enough computing power, at least on certain kinds of blockchains. Those are things that we need to think about, technology and operational risk for sure. 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 about money supply and monetary policy and how do we think about these digitized assets.

They're fully reserved and so the binding constraint is the amount of M1 that the fed puts into the economy, but as the velocity of money gets faster and faster, how confident can we be that at any given moment in time and those one to one relationships between reserves and stablecoins are being maintained If they're not being maintained, what does it do to the actual money supply? Says money, supply affects interest rates and it affects inflation and other kinds of things.

We need to think about all of those things. 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 risks. 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 of consumer rules. When you get to a place where 40 or 50 million people want something, they're going to have it.

It's only an issue of us doing the hard work to figure out what the framework is for. I always come back to the Uber example. Every municipal government, America wanted to band Uber. The only reason they failed is because too many tens of millions of Americans said, "No, no, too [unintelligible 00:29:54]

[crosstalk]

Jeremy: Yes, but I I've made this point and actually it leads into is something you touched on earlier, I want to bring it back to the forefront of the conversation a little bit, which is the geopolitical dimensions of some of this. I think one of the things that a lot of people have noted is that in a world of internet native money, of digital dollar, stablecoins, in many ways, people all around the world can 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 or receiving stablecoins and digital currency in that way and we're going to see a lot of people and a lot of places say, voting, "I'd like to be part of the dollar economy." That happens already, informally and formally. There's dollar banking in lots of countries, and there's obviously huge informal economies of cash and dollars everywhere.

There's 500 billion physical dollars shipped out each year into the world, but this phenomenon, it does have these geopolitical dimensions to it. You have China, launching internet native money. As I've pointed out, I've had people who are from the PBOC on the show here talking about it, 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 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.

This is a geopolitical issue. It's not just a payment system innovation issue or an efficiency issue. We're seeing countries such as China making digital currency and blockchain technology a core strategic focus. I think here, in the United States, the position of the government could be viewed as neutral at best. They're certainly not at least not yet any 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 is there something more to do here? How do we get there? How can the United States lead?

Brian: Well, look, these are great questions. I wouldn't write off the United States in this area by any means, but I would definitely acknowledge the we are slow off the blocks, and we don't have a single strategy that has been endorsed at the highest level. As you know, there are a number of people in senior roles in the administration and elsewhere who have really focused on this, and moreover time, we have a CFTC chairman, who has made it a public mission of theirs to grow America's leadership in this space.

You have a newly reconfirmed SEC Commissioner, who is very focused on the chief technology officer of the United States who came out of Silicon Valley and is crypto guy. There are a lot of people, more maybe than most people realized, in the government who are very focused on these things. I think there's both an optimistic view and a pessimistic view of the future on the questions you're raising and the optimistic view would say, "Hey, it's actually great that China is doing what they're doing [unintelligible 00:33:20] 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.

As you put up it, in which economic system they want to participate in, it'll be harder for authoritarian regimes to prop up their currency artificially as China did for years. It'll be way easier for people to decide what that currency is really worth and to bargain that down if that's the right thing. Bringing those market forces to bear I think, has to be a good thing. The other optimistic part of the future also is in a world where foreign exchange is a significant component of international trade, just the need to change dollars into yen or whatever to buy or sell commodities in Japan is itself a 7% tax on the transaction. Imagine if you could take all of that out because the yen [unintelligible 00:34:10]

[crosstalk]

I've got a stable coin, which is a representation of money that is held at the Bank of Japan but the money's not leaving the Bank of Japan. There's no foreign exchange. That's the optimistic view. The pessimistic view is this, which is in a world where the dollar has been the reserve currency and it's the currency in which almost all global commodities are stated, Americans get an inherent discount every time we buy things on the global markets. Other countries know this.

They think it's unfair. It might actually be unfair, and in a world where there aren't there's that much economic pressure to use other currencies than dollars. The only way to maintain our primacy, is to add features right? If 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.

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 dollars to buy their own oil, that can't last forever. We need to envision a future where we're being competitive as opposed to complacent.

Jeremy: Yes, well, lots of lots of room for US-led innovation here, on many fronts. Last question here, you have seen a lot of evolution in this space, you see the pace of change, you the fundamentals of the of the transformation that's possible. Just for a moment step back, where do you see all this in in three to five years? In that timeframe, how can this lead to very durable improvements in the US financial system?

Brian: Well, three to five years is tricky. If you'd said 30 years, I think more accurate vision. I think three to five years has a lot of dependencies on does our economy reopens in the next six months? What happens with the presidential election? What happens with China on various immediate issues of security?

Jeremy: Sure.

Brian: What I would say is if you 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 ACH and other networks. Once they do that, the nature of banking will begin to change because banking will always, I believe, be the key on-ramp and the key value at the service provider, 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. 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. 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, and people start to believe that the sovereigns are maybe not as trustworthy as they once were. Bitcoin is not generated by any sovereign, maybe that's the thing to hang on to. I think you'll see more of that but over time, the world tends toward more stability, things reach equilibriums.

Since decentralized things are more stable than centralized things, I would predict that the movement that started 200 years ago with the First Bank of the United States, a movement toward more decentralization, will continue, banks will adapt to that they will add value to that, and the world will go on, but it'll go on in a cheaper, faster, more accessible way than it has before. That'll be good work of people like you. That'll be my view.

Jeremy: It's awesome. The money movement continues. Awesome, Brian, it was awesome to have you on. Thank you so much, and obviously, hope to see you again soon.

Brian: Jeremy, real pleasure. Thanks for having me.

Jeremy: Absolutely. A lot of processes there. Clearly, we are at an inflection point. This rise of digital dollar stablecoins appears to be ready to cross the chasm from the early adopter phase and 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 dive into the power of stablecoins as a payment and settlement medium in purely digital, tokenized securities and financial contracts.

We've always seen stablecoins on public chains as a base layer and a complete condition to the very big idea of tokenized assets and financial contracts. Next week, we're going to 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 introduced so much cost and friction into real estate finance something that we touched on earlier here today.

We're also going to be joined by Securitize's CEO and co-founder Carlos Domingo whose firm is at the forefront of enabling companies to issue digital securities, we're going to deep dive into the cutting edge world of stablecoins and digital securities. Until next time, stay well, stay safe, and stay informed. Thank you.

[00:40:02] [END OF AUDIO]

Brian Brooks
Acting Comptroller of the Currency OCC

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