Acting Comptroller of the Currency Brian Brooks said Thursday he thinks banks will be connecting to blockchain the way they are connecting to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network in three to five years.
Then, they won't be the bottleneck of transactions, he told Jeremy Allaire, CEO of Circle, in a Zoom interview for the stablecoin payments software company's "Money Movement" podcast.
“Instantaneous settlement [with stablecoin] would be a game-changer," Brooks said, noting the system's speed and cost advantages.
There is a 7% charge on a transactions changing dollars to yen, he said. "Imagine if you could take the cost out," he said.
Beyond that, he said, stablecoin may help preserve the role of the dollar in the financial system.
"Currently, we are the only country in the world that doesn't have to change money to buy oil in Saudi Arabia. Even the Saudis do. That can't last for years," Brooks said. "The dollar has been reserve currency for a long time not because it's better or easier to use but because it's more liquid."
Stablecoin is to the dollar what email is to the letter, Brooks said, and users need to have no less confidence in it than if they were using a prepaid debit card.
He argued for a decentralized system of payment rails led by companies rather than one that is government-owned, noting that the Visa network began as a credit card offered by Bank of America.
"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," Brooks said.
The comments could be seen as a blow against the Federal Reserve's effort to roll out the FedNow system when The Clearing House's Real Time Payments network is already running, with 29 participating financial institutions and a reach of more than half of demand deposit accounts in the U.S.
"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," Brooks said. "We're way down the path of decentralization."
Before joining the Office of the Comptroller of the Currency, Brooks served as chief legal officer for the digital currency exchange Coinbase.
Regulators need to establish reserve and audit expectations for stablecoins, he said, adding that Bank Secrecy Act and anti-money laundering safeguards are the most important aspects of money transmission networks to be perfected.
There needs to be a balance between privacy and the ability to investigate crime with stablecoins, Brooks said.
"Private transactions that can't be traced forever is a nonstarter," he said.
The risks of stablecoins are not trivial, Brooks said but added there is too much public appetite for their benefits to stop them.
By analogy, Brooks said every municipal government wanted to ban Uber, but consumer demand for the service overwhelmed their objections.
The OCC last month told nationally chartered banks and federal savings associations in an interpretive letter they had the authority to provide cryptocurrency custody services for customers through escrowing encryption keys used in connection with digital certificates.
Institutions that provide crypto custody services must conduct them "in a safe and sound manner, including having adequate systems in place to identify, measure, monitor, and control risks," the letter said.