Expert Interpretation: How the New Policy of the U.S. Office of the Comptroller of the Currency (OCC) Promotes Blockchain Cross-Border Payment from Concept to Application
The U.S. Office of the Comptroller of the Currency (OCC) stated in an explanation letter released earlier this month that U.S. national banks and federal savings associations can use public blockchains and stablecoins for settlements, suggesting that banks and savings associations can now run encrypted nodes and Use associated stablecoins for "permitted payment activities". OCC also believes that the blockchain stable currency network can be used as a cheaper, faster and more efficient payment method to reduce the cost of cross-border transactions.
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Application of Stablecoin Technology in Payment Scenarios
"This move by the OCC will help promote stablecoin payments into the mainstream, and there is a lot of room for development." Zou Chuanwei, chief economist of Wanxiang Blockchain, said: "The regulatory framework for stablecoins in the United States is very clear, and it also clarifies the stability of commercial banks. The role played in it. In the explanation letter, OCC clarified that commercial banks can participate in the network of independent node verification as operating nodes, that is, commercial banks can participate in consensus bookkeeping.”
Previously, in the European Commission's proposal on the regulation of the encrypted asset market, the content related to stablecoins was very close to that of the United States. Therefore, from the perspective of the regulatory framework, stablecoins will be defined as commodities, securities or derivatives, depending on their specific design type. As we all know, commodities are subject to relatively loose supervision. To be recognized as a commodity, stablecoins not only need to meet the regulatory conditions, but also need to issue a 1:1 full reserve fund, and the assets of the statutory reserve are entrusted to the regulated Bank of America. Promise users that they can exchange 1:1 in two directions, and at the same time, they cannot pay users interest. This kind of stable currency that will not interfere with the local currency order has a lot of room for development.
"Although the policy does not completely exclude issuance on the public chain, judging from the compliance regulations of 'whoever issues it is responsible', the issuance of financial products should be on the alliance chain rather than the public chain." Founder of American Liyan Consulting Company Ren Gu Yanxi said: "The statements of the U.S. President's Financial Market Working Group and the OCC both indicate that the United States does not plan to develop its own U.S. dollar CBDC in the near future, but leaves it to the market to provide U.S. dollar-based digital stablecoins. This means that in cooperation Under the premise of regulations, institutions such as Diem (formerly known as Libra) and commercial banks can issue stable coins according to their own conditions, either independently or in alliances, and there are no clear technical regulations, as long as it is a distributed, independent and suitable network. Can."
"This policy will not only promote the development of stablecoins, but also the development of the US and even global financial markets. As we all know, the US dollar is supported by a centralized clearing system, while stablecoins are supported by blockchain or distributed bookkeeping. Technology is implemented, that is, the issuance of stable coins requires an infrastructure based on the underlying blockchain technology. The future encrypted digital financial infrastructure will not only support the most basic and simple financial products such as stable coins, but will also support securities, real estate ownership, etc. The circulation of various financial products promotes the circulation and trading of all financial products." Gu Yanxi further added.
Zhang Yutong, a visiting researcher at the University of California, Los Angeles, believes that stablecoin technology is a technical route that can be used in payment scenarios, mainly depending on how the OCC views the application of stablecoins in payment scenarios. He said: "In the field of payment, it is generally divided into two types: 'account-based' and 'account-free'. The application of blockchain in payment scenarios is an accountless operation, which is essentially a technology-oriented approach." Payment processing and processing, there are no restrictions on payment scenarios, that is, as long as there is a need for online and offline consumption. In addition, because of the natural financial attributes of stablecoins, stablecoin technology will be implemented more in financial scenarios. First, borrowing, and then It is an evolutionary process such as securitization. OCC’s explanation letter provides banks and non-bank financial institutions with opportunities for innovation and bold attempts, which may lead to a situation of bull competition in the United States.”
In the future, the application of stablecoins to payments will be a trend in the development of accountless payments. "On January 20, the People's Bank of China issued the "Regulations on Non-bank Payment Institutions (Draft for Comment)", which changed the standard of traditional payment licenses from the original 'online payment', 'issuance and acceptance of prepaid cards', 'bank card acceptance' "Single" and so on, become "whether there is an account" and "whether there is operation". OCC's stable currency policy is to allow the use of non-account-based payments. After the revision of the "Regulations on Non-bank Payment Institutions (Draft for Comment)" , Blockchain technology may also be used as a technical route for non-account operations in China.” Zhang Yutong explained.
Regarding the main points mentioned in the OCC’s explanation letter, Zhang Feng, a partner of Wanshang Tianqin Law Firm, expressed the following three points of view:
(1) The starting point of OCC is to maintain the effectiveness of the banking system, regard public blockchains as financial infrastructure, and encourage banks to use stablecoins based on public blockchains for cross-border payment settlements. The beginning of the integration of block chain and public chain asset trading system.
(2) The use of stable coins for settlement is still to serve bank users. At the regulatory level, bank users and blockchain users still cannot switch freely, that is, the exchange of legal currency Token obtained by OCC can only be used within the bank.
(3) This is the beginning of blockchain Token assets entering the banking system. In the future, more blockchain assets may enter the banking system, and banks may even provide users with limited blockchain asset services.
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The Compatibility and Complementarity of Account Paradigm and Token Paradigm
In 2018, the People's Bank of China released "What Can and Can't Blockchain Do?" "(authors Xu Zhong, Zou Chuanwei) put forward the Token paradigm from the technical level. "Regarding the difference between having an account and not having an account, when the Bank for International Settlements (BIS) proposed the "Flower of Currency" model, it mentioned that the central bank's digital currency can be based on the account or the Token paradigm. In fact, there are still Small boundary, that is, the consensus boundary we often say: the trinity relationship of Token, smart contract, and consensus algorithm. There are two types of interactions inside and outside the blockchain. One is to read information outside the blockchain into the blockchain. Corresponding to the oracle; the second is that the Token in the blockchain represents the assets in the real world, which are the two core technical features of the blockchain extracted from the economic level." Zou Chuanwei further pointed out: "The essence of Token can be understood as a distributed A mathematical symbol in a digital ledger or a centralized ledger, which is similar to cash (point-to-point transactions) and surpasses cash (can be divided into smaller units, transactions are naturally cross-border, and liquidation is intelligent). The Token paradigm itself is Anonymous, can be associated with some user identities, can realize peer-to-peer transactions without intermediaries, shared accounts, and cannot be tampered with. The Token paradigm has the advantages of good openness, good anonymity protection, and peer-to-peer, and is compatible with the account paradigm. , integration, based on the alliance chain and applied to different scenarios."
Zhang Yutong believes that accountless payment and transactions have two characteristics: (1) Accountless transactions for payment actually remove the credit hierarchy; (2) After migrating from traditional payment systems to Token paradigms, no intermediaries are required. The reasons for trusting the payment of the stablecoin paradigm are: first, to recognize blockchain technology and achieve trust through a consensus mechanism; second, to recognize the credit of the issuer behind the stablecoin. "OCC allows banks to use stable currency technology for payment. First, because banks issue stable currency, the credit system will not collapse; second, stable currency and stable currency technology are different. Using stable currency technology can achieve 100% reserve payment. For example, 100% of the digital renminbi will be paid to the central bank. Focusing on the payment field, although the Token paradigm is decreditable, the credit level is still anchored, that is, the Token issuer, so it will also bring a series of regulatory challenges. For example, the regular The reason why XRP, facing being sued by the SEC, is recognized as a security token is because XRP has multiple financial attributes: first, as an intermediary for cross-border remittances, it is a payment tool based on the blockchain system; second, selling XRP It is defined as an investment contract by US law, which belongs to the concept of securities, so the SEC defines it as a security token.”
"The account paradigm and the Token paradigm are not the essence. The real difference between bank assets and blockchain Token assets lies in the different sources of credit behind the bookkeeping system." Zhang Feng believes: "As financial infrastructure, the two cannot be mutually exclusive at present. Replacement, but it can be perfectly compatible and complementary. At present, the traditional financial system is still the main one. If more assets are attached to the blockchain to carry more financial activities in the future, then the Token paradigm will become the mainstream. Banks are based on the blockchain The chain issues stable coins or other assets, indicating that banks have become part of the blockchain ecosystem. Banks' issuance of stable coins is controlled and subject to reserve funds and supervision constraints. OCC allows banks to adopt public blockchains, which helps It is more convenient, cheaper, and more efficient to promote cross-border payments. On the other hand, blockchain assets can also expand circulation through banks, reach more users, and enhance public awareness of blockchain.”
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The impact of digital yuan (DCEP) on cross-border payments
"After the emergence of digital renminbi (DCEP), third-party payment will face greater challenges. From a technical perspective, digital renminbi is safer, cheaper, and faster, so there is a tendency in the market to use digital renminbi (DCEP) for settlement. Possibilities." Zhang Yutong said: "Actually, for cross-border payments, the only way is different. The essence of digital renminbi (DCEP) is still renminbi, and behind it is still the endorsement of the central bank and national credit. The top-level design and commercialization area Blockchain tokens and stablecoins are different for cross-border payments. In addition, the mechanism design is also different. The technical system adopted by the digital renminbi (DCEP) is different from that of other regions and countries. The bottom layer of the digital renminbi may be distributed, but it is not The blockchain system, while Thailand and the Hong Kong Monetary Authority are trying to use the blockchain network to directly create digital currency. Whether the technology is coupled and the connection is smooth will become a technical challenge. Taking the Hong Kong Monetary Authority as an example, its It is building its own blockchain cross-border payment system, and is working with the Bank of Thailand on a central bank-level blockchain network to realize cross-border payment transfers between the central bank and the central bank system. These two attempts are still Under the traditional cross-border payment framework, using the blockchain method and the network as a settlement method can only be regarded as continuous improvement of the traditional cross-border payment system, not subversion."
Wang Mengdie believes that the digital renminbi (DCEP), as a payment medium, will have the following impact on international payments:
First of all, from the perspective of the design principle of the digital renminbi (DCEP), it has the advantages of high openness and natural cross-border settlement of point-to-point payment, which can effectively supplement the existing currency system and improve financial efficiency.
Second, the digital renminbi (DCEP) contributes to the internationalization of the renminbi. At present, the global currency settlement system is still dominated by the U.S. dollar. The digital renminbi (DCEP) can speed up the process of renminbi internationalization, or achieve overtaking at corners to gain more voice.
Third, potential challenges. In the process of realizing cross-border settlement, the digital renminbi (DCEP) will interact with other countries' sovereign currencies. For example, to complete KYC, it is necessary to solve the problem of overseas residents and institutions downloading and opening wallets. Second, the People's Bank of China needs to negotiate on the basis of cooperating with the central banks of foreign countries and respecting each other's sovereign currencies.
"For ordinary users, first of all, the digital renminbi (DCEP) will achieve controllable anonymity and better privacy protection according to the degree of perfection of personal information and credit line. At the same time, it can also expand payment scenarios that require privacy protection. Secondly, It can be seen from the recent digital renminbi (DCEP) pilot example that it has dual offline functions, that is, in the offline mode of mobile phone flight, the digital currency wallet can also be used to realize instant payment and real-time account transfer, which greatly expands the offline scenario. Payment application scenarios." Wang Mengdie added.
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OCC Eases Implications for Central Bank Digital Currencies
The existing financial system is mainly dominated by the US dollar, which has caused the global financial system to be constrained by the liquidity of the US dollar. Countries have reached a consensus on reforming the international monetary system. Especially after Facebook announced the launch of Libra in 2019, all countries have accelerated the process of developing CBDC. Wang Mengdie said: "Bitcoin, as a new form of currency, realizes peer-to-peer payment, which provides a basis for subsequent digital currency research. In 2020, affected by the new crown epidemic, major central banks around the world are releasing water. The pressure on the traditional monetary system It is increasing day by day. In response to the epidemic, the United States has introduced the largest economic stimulus bill in history, but it is facing two major problems: precise delivery and low efficiency of rescue. In previous rescues, there have been cases where funds from small businesses flowed from banks to some large, high-quality companies phenomenon, and the relief funds for residents in the United States are mainly completed by paper checks, which take a long time to be delivered to the recipients. The digital dollar can effectively solve these two problems and become a tool for the Federal Reserve to distribute money in a helicopter. Therefore, The United States adopts the advantages of the private sector in the field of digital currency, and waits until it matures before adopting a public-private partnership to avoid the potential risk of financial disintermediation through the private sector or two-tier operation.”
"Digital currency started with USDT, and then USDC, PAX, etc. appeared, and private currencies were generated in a distributed manner. The emergence of Libra led to a small upsurge and stimulated the development of CBDCs in various countries." Gu Yanxi also agreed that Libra is a Statements of CBDC catalysts in various countries. He added: "There were two developments before, one was a centralized CBDC, and the other was generated by a distributed market. The US policy has undergone significant changes to encourage the market to develop a blockchain-based digital dollar stable currency, This policy is different from the mainstream approach. The European Union clearly opposes the issuance of private currencies. In order to win the support of the European Union, Libra even changed its name to Diem. The recent opinions of the US President’s Office of Financial Markets and the OCC indicate that the United States currently encourages the market to adopt a distributed approach. Do innovation. Now we are mainly talking about stablecoins in the retail market, and CBDC may also appear in the future, serving different fields from the stablecoins in the market.”
"The OCC's new policy is aimed at stablecoins, not central bank digital currencies. The issuer is a commercial institution rather than the Federal Reserve. When a commercial institution issues a stablecoin, the asset custody is still on the balance sheet of a commercial bank rather than the Federal Reserve." Zou Chuanwei said: "The central bank's digital currency has different options, one is the retail type issued by the central bank to the public, and the other is the wholesale type only for commercial institutions."
The CBDC directly issued by the central bank is called a direct CBDC, that is, the central bank directly faces users. This will face huge technical challenges for the central bank of a populous country, and it will also have a great impact on the commercial banking system. The digital renminbi (eCNY) does not belong to the central bank's digital currency. The People's Bank of China is promoting this work from the perspective of payment system modernization. The six major banks have the status of quasi-note-issuing banks in the digital renminbi project, and they hold digital renminbi ownership. The digital renminbi is not first wholesaled by the People's Bank of China to commercial banks, and then retailed by commercial banks to users.
This is because commercial banks handle retail needs directly to users, while wholesale transactions and data backup are in the People's Bank of China, which helps to relieve the pressure on the system and the impact on commercial banks. In addition, the central bank's digital currency or legally compliant stable currency that people discuss is actually discussed as a payment tool rather than a currency tool, because the issuance of all institutions is based on sufficient reserves and is driven by user demand, rather than issuance. Institutions issue central bank digital currencies or stablecoins in order to expand their balance sheets.
