Brian Brooks, Acting Administrator of the Office of the Comptroller of the Currency, believes that digital currencies should be operated by the private sector, and what the government should do is make rules.
Original Title: “Reflections on the Unique Viewpoint of the US Dollar CBDC by the Director of the US Currency Comptroller”
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry
Brian Brooks, Acting Administrator of the Office of the Comptroller of the Currency, expressed his unique insights on the USD CBDC in a recent podcast interview . He directly raised whether it is necessary to issue USD CBDC. He believes that the original intention of USD CBDC is to issue USD on the blockchain. However, in the current market, there are already various digital dollar stablecoins issued at a 1:1 ratio of the same dollar. If these digital dollar stablecoins have realized the circulation of the US dollar on the blockchain, is it necessary to issue a US dollar CBDC? He also pointed out that the strength of government departments is not to develop products, but to formulate relevant rules, such as mortgage rules and disclosure rules. He gave an example of this. In the field of telephone communications, the regulatory agency of the US government is the Federal Communications Commission (FCC). However, the FCC does not make a standard mobile phone for market use by itself, but sets relevant standards. Companies like Google make Android phones and Apple makes Apple phones. Brian Brooks believes that in terms of digital currency, what the government should also do is to formulate rules, and then the private sector will operate the digital currency.
This view of Brian Brooks is completely different from the mainstream thinking of CBDC. The mainstream thinking now discusses how the central bank issues CBDC. But he directly questioned the need for the US government to issue USD CBDC. As the head of a major US financial regulatory agency, his view is even more distinctive. But if you think about it, his view is indeed reasonable.
In the field of digital dollar wholesale, there is now JPM Coin developed by JP Morgan. It is generated based on the 1:1 ratio of USD, and its main purpose is for settlement between institutions. If USD CBDC is issued, in the wholesale field, it will serve the same market as JPM Coin. Is such a result what American society wants to see? This will be a very controversial issue.
In the retail sector, there are already many USD-based stablecoins issued and circulating on the blockchain in the market, such as USDC, PAX, GUSD and the Libra USD stablecoin that will be launched on the market. And the number of these USD stablecoins, according to Brian Brooks, has doubled every 60 days in the past few months. This shows that these digital dollar stablecoins have been welcomed by the market. Similarly, if the USD CBDC is launched, the USD CBDC will also serve the retail market, which will form direct competition with the existing digital USD stablecoins in the market.
In general, whether in the wholesale or retail sector, there are now digital dollar stablecoins issued at a 1:1 ratio of the same dollar. And these digital dollar stablecoins have been welcomed by the market. In such a market environment, is it necessary to launch USD CBDC to directly compete with these digital USD stablecoins?
Brian Brooks’s view is not the mainstream view of USD CBDC so far. Now in the US market, the very influential digital dollar project initiated by the former CFTC chairman J. Christopher Giancarlo is promoting the development and launch of USD CBDC. Even when the Fed chairman talked about USD CBDC, he only believed that the Fed should be responsible for advancing it, not private institutions. But he did not question the necessity of USD CBDC. So Brian Brooks’s views on USD CBDC are very different.
I think the analysis of the necessity of USD CBDC is very similar to the analysis of other products. It is also necessary to analyze the market demand, what are the shortcomings of the existing products in the market in meeting the demand, the uniqueness of the planned product to meet the demand in the market, whether the new product is commercially feasible, etc. In analyzing the necessity of USD CBDC, at least the following dimensions can be considered.
First, the effectiveness of implementing the Fed’s monetary policy. Advocates of USD CBDC believe that the Fed’s direct issuance of CBDC can implement the Fed’s monetary policy more timely and effectively, and can achieve broader financial inclusion. The process of the US government’s disbursement of relief funds in the relief activities of this epidemic has made the market more aware of the current financial market’s inadequacy in serving vulnerable groups. Some recipients of relief were unable to obtain timely assistance from the US government because they did not have a bank account. If USD CBDC is issued, the monetary policy of the US government can be more effectively implemented. In disaster relief, the US government can directly send relief funds to the mobile phone terminals of the relief recipients. In terms of efficient execution of monetary policy, USD CBDC is obviously the most direct and effective tool. But in order to better implement monetary policy, whether CBDC is the only solution requires more analysis.
Second, it supports the convenience and wider scope of using the US dollar across borders. In this regard, digital dollar stablecoins may not bring better improvements than existing liquidity methods. This includes digital dollar stablecoins currently in circulation in the market and possible US dollar CBDCs in the future. The current new market infrastructure is distributed accounting technology, so the digital dollars circulating on it will have no problems in circulation on a global scale. This is more efficient than the existing centralized system that supports USD cross-border payments and transactions. However, the circulation of the U.S. dollar is still under the supervision of the U.S. government and various financial regulatory agencies. So even if it is based on blockchain technology, it will not be freely circulated. The underlying clearing and settlement system is a major factor in affecting the circulation of the US dollar, but also important is the US government’s requirements for the use of US dollars. Therefore, under the premise of compliance, in terms of cross-border transaction circulation, there will still be certain restrictions on the circulation of digital dollars supported by distributed accounting technology.
Supervision lags behind the market. In the current cross-border circulation of US dollar stablecoins, the circulation of US dollar stablecoins is obviously much freer than conventional circulation methods. This is why it doubles in total every 60 days. However, if local financial institutions have the same compliance requirements for USD stablecoins as they have for the USD flowing in their system, this will definitely limit the number of USD stablecoins circulating in the market.
Third, support more efficient trading of digital assets. The widespread appearance of digital assets is an inevitable trend. The transaction payment method that supports digital asset transactions must be the delivery vs. payment (DVP) model, that is, the use of digital currency to trade digital assets, using one-handed payment and one-handed delivery. In this regard, the underlying technology is the most important factor that directly affects the feasibility of such transactions. Digital dollar stablecoins in the market are now issued and circulated on different chains. Therefore, the digital asset transactions they can support must be carried out on their respective chains. In terms of the technical basis for the issuance of USD CBDC, the interoperability with various digital assets in the market must be considered. If the US dollar is to issue CBDC on top of a certain technical support, then various digital assets in the market need to be technically interoperable with US dollar CBDC. The Fed CBDC system will become one of the systems in the market. Will this be the result the Fed wants?
In view of the global characteristics of distributed accounting technology, and also in view of the market’s demand for a universal currency on a global scale, it is indeed necessary to develop a digital currency standard on a global scale, not only in the United States. Such standards are similar to those in the communications industry. After the standard is established, the fiat currencies issued by various governments can easily achieve interoperability with each other. This kind of thinking is also what I have always believed that some major central banks should work together to establish a common financial market infrastructure, and then each issue their own digital currency in accordance with unified technical standards. Although Brian Brooks’s views in this regard are about the US dollar, they can also be further extended to the international level, that is, central banks of various countries formulate standards in this regard, and the specific implementation is carried out by organizations in the market.
