OCC Says Banks Can Use Stablecoins in Payments

Banks can use stablecoins to conduct payment activities, according to an interpretive letter issued by the U.S. Comptroller of the Currency’s office on Jan. 4. The OCC writes that “blockchain and related stablecoins represent new technological means to conduct bank-authorized payment activities.”

Cryptocurrency industry insiders have taken the letter as a seal of approval for stablecoins like Tether and USDC, offering reassurance at a time when other official statements suggest that these stablecoins could be classified as securities. However, the letter is not only an encouraging step forward for stablecoins, but also for cryptocurrencies in general, as the OCC recognizes “independent node validation networks” (INVNs, also known as blockchains).

In other words, this letter will help pave the way for a future scenario in which banks manage bitcoin and other cryptocurrencies themselves. But because their regulatory status is still too unclear, it could be some time before stable currencies are also traded by traditional banks…..

OCC approves banks processing payments with stablecoins…. and bitcoin

The OCC’s letter, signed by Jonathan V. Gould, the Office’s first deputy comptroller and general counsel, contains several important statements. Together, they argue that banks can fully integrate with INVN, process stablecoin transactions and act as stablecoin nodes on the blockchain…..

“Banks can act as INVN nodes and use INVN and associated stablecoins to perform authorized banking activities, including authorized payment activities,” the discussion section states.

Clearly, the letter focuses on Stablecoins and banks using Stablecoins as “a mechanism for storing, transferring, transmitting, and exchanging the value of underlying fiat currency, all of which is essential to facilitate payment activities.”

However, it also leaves the door wide open for banks to later use bitcoin and other cryptocurrencies, as it generally supports banks using blockchains, which presumably includes blockchains for bitcoin, Etherium and others….

At no point does the letter exclude unstable cryptocurrencies from the future jurisdiction of banks, nor does it explicitly warn against payments using bitcoin or other cryptocurrencies. Instead, it notes that the evolution of currency and technology will likely force banks to keep pace and provide the services that customers demand…..

The OCC must face reality. The more institutions and businesses buy bitcoin/crypto during the current bull market, the more banks will lose by not providing services to these institutions, including the ability to store and trade cryptocurrencies.

Confidence in stable currencies?

The OCC’s letter comes at a difficult time for stablecoins. Just before Christmas, the President’s Working Group on Financial Markets, which is made up of officials from the U.S. Treasury Department, the Securities and Exchange Commission and the Federal Reserve, issued a statement on regulatory issues related to “certain stable currencies.”

The key detail of the statement is the working group’s insistence that stable currencies could potentially be classified as securities, making them subject to securities laws:

“Depending on their structure and certain factors, stable currencies could potentially represent securities, commodities, or derivatives subject to federal securities. In such a case, the Stablecoin itself, the transactions and the participants in the Stablecoin Agreement will be subject to federal securities laws and the Commodity Exchange Act (“CEA”). “

Some of Tether’s critics suggest that this is a precursor to SEC action against Stablecoin, similar to the SEC’s action against Ripple.