Although Acting Comptroller Brooks’ tenure was never boring, he went out with a bang.  Finishing with a controversial charter approval and a sweeping interpretation, Mr. Brooks has really left a mark on the future of digital currency.  Indeed, as he left, he said that fiat currency will soon be a “thing of the past.”  But, for all of digital currency’s explosive power, none of it has yet come close to being money; until someone figures out how to do that, fiat currency is here to stay.  In fact, Mr. Brooks knows this – after all, what are stablecoins if not just a fiat-currency arbitrage play?

This memo isn’t the place to go into the differences between “inside,” “outside,” “account,” and “token” money – see my forthcoming book if you dare.  Nor need we here delve into how critical fiat currency is to lower-income households – again, check out the book and, if you don’t believe it, just wait for federal legislation later this year banning businesses from refusing to take cash.

What matters about money is less the form it takes than the function it fulfills.  Two of these are essential – serving as a store of value and a medium of exchange, one is optional – funding speculation, and the others are of interest only to numismatists.  Many digital currencies meet the medium-of-exchange criterion, but often only in very limited markets, almost all of which are illicit that use new currencies more to evade law enforcement than to exchange goods and services in a sure and certain way.

Bitcoin’s wild rise in the last week — up and down more than sixteen percent in just a few days – makes it more than clear that even the most established digital currency can’t be counted on as a store of value.  Mr. Brooks has posited a payment system based on digital currency, but it’s hard to see who would expect payment in such transient form.

To be sure, Mr. Brooks’ enthusiasms are most pronounced for stablecoins, digital currencies such as Facebook’s Diem in which the money’s value is predicated on fiat currency and thus – yes – “stable.”  Stablecoins thus of course cannot consign fiat currency to the history books because they do not exist without it.  Instead, they intend to do fiat currency one better.

Sometimes, this one-better comes from greater efficiency and speed.  This is surely the case with internal, permission-based networks akin to JPMorgan’s innovative wholesale-clearing system.  Sometimes, though, the one-better can only be measured in terms of the stablecoin issuer’s own self interest.  This is clearly the case with Facebook’s Libra 2.0 and it’s sure to be true of many other stablecoins unless or until regulators go beyond simply stipulating a one-to-one reserve ratio and  actually regulate the components of these reserves.  All of Mr. Brooks’ wide-open spaces rulings skirt critical questions such as how sterile the reserves must be, what fiat currencies go into the basket, and who values them and, even more importantly, who has the wherewithal to top them up if foreign-exchange values undermine the new coin’s stability, as is sure to occur on a regular basis.

When we trust our fiat currency to banks, it is a like-kind transaction in that we can get the same amount of money back from the bank when we demand it due to both fiat currency’s features and the rules that force banks to abide by them.  We accept this form of account-based money because we know that banks are good for it and that, any day and anytime, we can get fiat currency from an ATM or by cashing a check.

Mr. Brooks’ mark on the future of digital currency in the U.S. is indelible because the charters he granted cannot be revoked and the interpretations he fostered may be allowed to stand.  However, none of these actions resolves the critical question:  what’s a stablecoin worth when you want it?  This critical policy challenge is outlined in the President’s Working Group’s ground-breaking report late last year.  It – not the OCC’s actions to date – truly tackles the questions that must be answered well before stablecoin innovation is anything but a risk to holders and a boon to issuers.

We may still have more of the private stablecoin ventures dear to the Acting Comptroller’s heart, but the Fed will not allow the payment system to meander into stablecoins.  Congress will also not authorize anything other than the “digital dollar” increasingly dear to Democrats, moving also to demand a faster fiat-currency payment system – not a revolutionary overhaul of cash and the communities that depend on it.  This will thus be a busy year for digital currency, but not the fast, wild ride to the future for which Mr. Brooks had hoped we’d saddle up.