The Office of the Comptroller of the Currency stated on January 4th that federally regulated banks can use stablecoins to conduct payments and other activities.

The OCC, an independent bureau within the United States Department of the Treasury, has provided interpretive letters and guidance allowing federally chartered banks to use stablecoins, or digital currencies with relatively stable prices, for standard banking transactions like payment activities.

What is a stablecoin?

According to CoinDesk, a stablecoin is “a kind of digital currency whose value is tied to an outside asset, such as the U.S. dollar or gold, to stabilize the price”.

The underlying idea of stablecoins is to resolve the volatility risk of digital currency: “Stablecoins try to tackle price fluctuations by tying the value of digital currencies to other more stable assets – usually fiat. Fiat is the government-issued currency we’re all used to using on a day-to-day basis, such as dollars and euros, and it tends to stay stable over time.”

In its interpretive letter, the OCC compared stablecoins to Electronic Store Value: “Like ESV, stablecoins can serve as electronic representations of those U.S. dollars. Instead of the value being stored on an ESV card, the value is represented on the stablecoin. This distinction is technological in nature and does not affect the permissibility of the underlying activity,"

Why is the OCC guidance good news?

By releasing this guidance, the OCC is clearly showing that the U.S. government is ready to embrace innovative technology that would improve the financial system.

As the interpretive letter states, “over time, banks’ financial intermediation activities have evolved and adapted in response to changing economic conditions and customer needs. Banks have adopted new technologies to carry out bank-permissible activities, including payment activities. . .The changing financial needs of the economy are well-illustrated by the increasing demand in the market for faster and more efficient payments through the use of decentralized technologies, such as INVNs, which validate and record financial transactions, including stablecoin transactions.”

What is the impact for the payment industry?

By providing clearer guidelines, governments are paving the way for mass adoption of digital currency as a payment method. As individuals and businesses were already looking for better ways to purchase products and services, digital currency imposed itself as the dominant alternative.

With that in mind and by leveraging existing technology, businesses who wish to attract new customers and generate more revenue can now do it by adding digital currency as a new payment method easily.

You can check the full letter from the OCC HERE

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