FDIC Chair Wants Payment Stable Coins on Approved Blockchains – Ledger Insights

FDIC Chairman Martin Gruenberg sees payment stablecoins as those used for mainstream real-time payments as opposed to the existing stablecoins, which are primarily used within the crypto ecosystem. At a Brookings Institute event today, he said stablecoins should only be issued on approved blockchains.

His rationale is the ability to know all participants, including nodes and validators, to enforce sanctions and anti-money laundering compliance.

In response to a question after the speech, he said: “A permissionless public blockchain poses enormous challenges to basic regulatory responsibilities for safety and soundness, consumer protection and anti-money laundering. The potential for a permissioned blockchain where you can solve these problems. If you are to consider the use of technology in the banking system (it) we seem to have much greater potential.”

Gordon Liao, chief economist for USDC stablecoin issuer Circle, commented on a panel after the event, “We settled on a permissionless internet, which turned out to be very valuable. Not having closed networks where you can only send email within your own network.” Addressing the concerns raised, he pointed to blockchain analytics as a tool to combat money laundering and enforcement of OFAC sanctions lists.

In addition, the FDIC’s Gruenberg wants issuers of stablecoins to come under regulatory oversight and stablecoins backed by short-term government bonds.

Are stablecoins used for payments in the real world?

Circle’s Liao agreed with the strong support for stablecoins. “Where I think the chairman may have missed the mark is the utility of crypto that is emerging right now. As well as the bank versus non-bank issuance of payment stablecoins,” Liao said.

Gruenberg had previously commented on cryptoassets more generally, “So far we haven’t seen much evidence of benefits from cryptoasset activity,” particularly regarding financial inclusion.

Circle’s Liao identified the ability of stablecoins to reduce the cost of cross-border payments, including low-value remittances.

Regulators assume that current stablecoins are used entirely for cryptocurrency activities. Liao highlighted that the purpose of many stablecoin transactions is not always clear. For example, 75% of USDC wallets are less than $100, and only 10% of USDC are held on exchanges. He later mentioned that 25% of transactions are person-to-person, not involving a smart contract.

“So it’s not entirely clear how much payment activities are real payment activities versus speculative,” Liao said. (Author’s note: I’ve used USDC to make a couple of real-world payments). However, the majority of transaction values ​​are likely within the crypto ecosystem.

As for limiting stablecoin issuance to banks, Liao noted that the Great Financial Crisis was partly because of the risky products and partly because the banks were too big to fail.

“Separating payment functions from banking, starting with a proper way to regulate stablecoins and providing access to the Federal Reserve for non-banks can pave the way for reducing overall risk to the financial system,” Liao said. Previously, Circle stated that it intended to become a bank.