8 reasons why the U.S. needs a digital dollar | Former CFTC chairman explains

You can't stop the march of technology in time, and if you do, you become a backwater.

This technology is going to progress regardless of whether or not the government gets it right?

Absolutely.

Why'd they let you into government at all?

Chris Giancarlo is an American attorney and the former chairman of the US Commodity Futures Trading Commission, one of the country's most powerful financial regulators. Last year, Giancarlo co founded the Digital Dollar Project, a private sector initiative that aims to advance the exploration of a US Central bank digital currency. The project plans to launch five pilot programs this year, narrowing the gap that still separates the US From China in the digital currency race. Many fear that China may use its Digital Yuan for mass surveillance. And Giancarlo wants the US to take a different approach with its implementation.

Our killer app, our ace card that the United States has, is only we have that Fourth Amendment protection.

In this exclusive interview with cointelegraph, Giancarlo shares the current state of the Digital Dollar project, explains why the world needs central bank digital currencies, and explores whether it's possible for regulators and innovators to find a common ground.

Can you give us an update on how the Digital Dollar Project is coming along? I understand there's a couple of exciting experiments coming down, and over the last.

Few months we've put together a program and we announced just a few weeks ago that we're actually going to create a U.S. testing ground. We'll be able to operate these nine pilot programs, working with some of America's major retailers, whether they be big box stores or banks or payment providers, others, to test out these different uses. In the next several weeks, we will announce two of five pilot programs that we intend to do this year. And, and hopefully we'll do the full nine sometime. We'll complete the full nine sometime next year. Everything we do will be made publicly available. It's technology neutral, it's vendor neutral. And so what we want to generate is some real US Data that academics can use, that policymakers on Capitol Hill can use, that the Fed can use to make some core decisions.

Yeah, God's work actually getting some real progress and real experiments getting done.

Exactly.

One of the sort of core aspects of a CBDC conversation is this kind of digital currency race. Right. The US Policymakers, it seems the only way to get their attention is by, you know, warning that China will get ahead of this. How scared do you think policymakers should be about the digital Yuan? And is it this sort of national security issue that many people seem to be making it out to be.

Yeah. So there are many constituencies weighing in on the development of a US central bank digital currency. And for some of them the rise of China, the launch of its digital yuan is a concern. But I would, I believe there are at least seven imperatives. Why? The majority of the world's central banks, including now the U.S. federal Reserve are looking at developing a central bank digital currency. And geopolitical geopolitics is only one of them. So if I can just quickly inventory those drivers. The first one, before it was even talked about in terms of geopolitical was data capture. What got China started was the concern that commercial enterprises like Alipay and WeChat Pay were going to capture the commercial data of its citizenry. And in a single party communist state that cannot be. The party must be the owner of all of that data. But it's not just communists central banks that were concerned about this. The announcement of Facebook's Libra got central banks in Europe and the United States very concerned about citizens commercial data being captured by commercial entities, especially commercial entities like Facebook who had just been through a scandal about their data capture activity. Right. So data capture was imperative number one and remains imperative number one I think for a lot of central banks. The second one is wholesale financial market modernization. Singapore, which has now been looking at this for years as an offshore island financial center, needs to maintain its technological edge in wholesale financial services and saw digital currency digital payments as one driver in that and certainly London others, Europe for example, BIS are looking at this. Thirdly, there have been advocates for financial inclusion or under inclusion here in the United States for a long time. But the COVID pandemic crisis really brought their voices to bear and conversations about Fed accounts, a digital dollar that was introduced by Professor Ricks from from Vanderbilt and a few others. Financial inclusion was another third driver. A fourth driver was benefits distribution precision. We saw in the financial in the COVID crisis the issue paper checks people that don't have bank accounts. Right. So that now fifth is perhaps the rise of stablecoins. I think you know, Caitlin Long recently talked about it, a speech she gave at Cato that there's now $16 trillion of bankless financial transactions taking place through stablecoins right now. Certainly central banks have taken note of that and are paying attention to that. Stablecoins are on the agenda of the people at the very top of the regulatory pyramid in Washington D.C. then I would say maybe sixth is geopolitical concerns. Those central banks who have a reserve currency to promote and defend and who like their Percentage of the world's reserve currency, whether that be the United States, the eu, Japan, look at China and say will the development of a digital yuan shift that balance? Will it the use of the yuan? And then another factor would be national security agencies. I think national security agencies think about how a digital currency could be used to fund illicit activities, terrorism activities, without having to go through the enormous global banking system which is western dominated, to which sanctions can apply. So a digital currency might bypass that. So all of those factors and then I would add the one that I've been talking about for some time now, which I think is the most important thing and that is the value systems. That's inherent money. Money carries with it value. The dollar's use over the last three generations have carried with it values of free enterprise, of financial markets, free of clumsy government interference, of an economic zone of privacy, provided it's not used for illicit purposes, but for legal purposes, a zone of privacy. What's very clear that China intends their digital yuan to be an instrument of state surveillance. Yes. And even further, a social credit weighing system. And this is why, it's one of the reasons why the digital dollar project, we're so animated because we feel that our new mission is to make sure central banks wake up to this and the US Fed wakes up that these social values that got us here, the rule of law, free capital markets, free enterprise, zones of individual economic privacy are ingrained in a new digital future of the US dollar. And that we don't allow ourselves to be taken in by what China's doing and match that state surveillance approach.

I think that's going to be tremendously difficult work. To the extent that a policymaker is going to be more concerned with of those six or seven drivers, they're going to be more concerned with the national security implications or this largely unregulated stablecoin or defi economy than they are going to be with, as you say, preserving American economic values through whatever form potential US CBDC might take. How do you shift those priorities? How do you get them to understand, you know, the enormous good that a well implemented CBDC could have? How do you, you know, move away from maybe the eye catching headlines and into the deep rich policy?

So being a lawyer, I'll start with the law. And we have a Constitution and our fourth Amendment guarantees a right of privacy against government interference. And so the starting point, and in fact even, maybe even our killer app, our ace card that the United States has is only we have that fourth Amendment protection. Europe has gdpr. It's privacy protection, but it only protects its citizens from commercial exploitation of their data. It doesn't protect them from government exploitation of their data. Commercial coins. Their protection of privacy will be idiosyncratic. Some will, some won't. We know that a lot of commercial vendors want to mine data. That's how they earn a return. The government would be, our US government would be prevented from doing so. And maybe even in a world where you've got a digital yuan, a digital euro, a commercial coin and the US dollar, the one where your privacy would be most protected if we get the jurisprudence right, would be with the dollar. Right.

Who's doing it right, you think? Who is implementing these? You know, China is obviously the boogeyman and has, you know, turned the principles of blockchain on its head for very nefarious purposes. Who's doing it right though? There's 56 other countries, 55 who are developing CBDCs. What are examples that the US should be looking to?

So again, you start with what's the mission? And then you hopefully get the design elements right. So if China's mission is to surveil its citizenry and distribute their digital currency widely, they're actually doing quite well right now against that mission. It's early days, but you can already download their digital currency today in much of China. You can spend it in convenience stores in Beijing and at the Winter Olympics. It will be available to every visitor and every athlete that comes, not just in China, but to take it back with them. And so on a practical level, they're achieving their goals. Singapore is looking at this to modernize its banking system. The Bahamas have a different mission. Their mission is they've got citizens on out islands that are mobile phone equipped but don't have access to banking services. Africa is still now is very much a leader in this because they have a similar issue, an underbanked population that are well mobile equipped. So again, what is the mission you're trying to achieve? And in the United States, money is as much a social construction as it is a government construct. And we very much need to keep that in mind as we design a digital dollar. If it only is there to serve government purposes, it will not succeed. It must serve society's needs as well as serving government needs. Right.

I think that this is a realm that's particularly academically juicy. Right. It's fun for grad student potheads and the like. What's one kind of niche use case that that really excites you? I love the idea, somebody wrote about the idea of A digital dollar that during times of recession has an expiration date. It forces and encourages spending. You know, these little niche use cases that governments can implement but individual projects might not be able to. What is a governmental scale use case for which programmable money could be very.

The notion of a digital currency, whether it be sovereign or non sovereign, tied to smart contracts, allows money to solve the age old problem of being able to move it in place, that is move it around the globe as easily as you can send a text message, but also move it in time. Heretofore money was a temporal thing, but with a smart contract you can say, I want to program my money today to go to my unborn grandchild in the future once they graduate college. And all of those contingencies can be programmed in. Now how do we do that today? Do that today by relying a whole series of trusted intermediaries called trustees, called executors, called trust companies that say, got your instructions, it's clear when you're dead, we promise you we'll make sure your grandchildren gets that college degree. Now you die, but you're still relying that they're going to do what you said, not abscond with your money or disobey your instructions. But with programmable digital currency, you can program it today to move around the globe in space, but move around the globe in time. And that is such, I think, such a powerful construct.

This is an interesting conversation for me because I'm already doing lots of this, right? I'm very active in the defi world. I do have digital savings accounts, I have lending, I have insurance. Many of the services in the traditional finance world are already being replicated through these unregulated finance experiments. I'm curious how a digital dollar would interact with a permissioned form of sovereign money, would interact with a more decentralized form of the experiments currently underway and what you're advising regulators approach these really thriving, frankly financial verticals, like how should they be thinking about them? And does there have to be an adversarial relationship?

No, there doesn't. The Internet is doing to centralizers of value what it's done to centralizers of information, what it's done to centralizers of retail. It's creating these defies. Now what makes this so challenging is when the Internet first set its sights on information. Information, because of our First Amendment protections of freedom of speech, has always been relatively unregulated. We don't have ministries of information in Washington to in a sense protect people and their information. But when you come to things of value. Governments have, have long presumed and have had the support of their populations to regulate things of value. We don't have one bank regulator in Washington. We've got three, the Fed, the OCC and the fdic. So there's a huge incumbency bias when it comes to things of value. There wasn't that type of incumbency bias in the first wave of the Internet. In fact, Congress took a first do no harm approach. Now we're having, you know, and this has been the struggle over the last few years and the work I did at the CFTC was to be aware of that incumbency bias and yet be open to new innovation. And so this is going to be a challenge that's going to play over the next few years. However, you can't stop the march of technology in time. And if you do, you become a backwater. We in the United States have always been open to innovation and we must be open to this innovation as well in a prudent way, in a way that's in correspondence with our society that expects investor protections and a role for government. But we've got to work out what is that proper role for government in, in the face of this decentralizing, powerful, democratizing technology. And that's going to play out over the next decade. And it's one that I'm very excited to be involved in.

Your view of this placing defi and blockchain in a broader regulatory history of the Internet actually makes me more hopeful that there can be sensible regulation than I think I've ever been. That, that's, that makes it seem possible somehow. Do you, how, how do these conversations go with regulators? I imagine most of them just don't know what they're talking about. So how do you get into the meat of this stuff? How do you get them to see these, these broad movements and scales when what they probably see is just a bunch of kids speculating on dog coins.

Right. So regulators are pretty much like any other segment of society. There was a book written years ago called Cross the Chasm that talked about, you know, every society's got a bell curve. There's the early adopters, you know, the big broad middle adopters and then there's the late adopters. The same is true in government. No political party has a monopoly on technologically forward leaning. They all have their population of early adopters, middle adopters and late adopters. And the same is true in government. So you know, some regulators I talk to like get it, they understand. Others are Like, I'm still using a quill pen, I use a flip phone. You know, I don't understand what you're talking about. So they're always going to be skeptics and they're also going to be. And. But most of the official sector, just like most of the private sector, is somewhere in the middle and communication and messages are really important. And my message to the crypto community Yesterday at Bitcoin 202021 was, so let's lead with our best messages. You know, I love the, you know, we're the pirates of tomorrow kind of analogy. We're off the grid this time it's different. But the fact of the matter is political power is going to move into this space just like they've moved in every new frontier. And we want to make sure is that the regulations that come out are suit for, well suited to purpose, that they work for the industry, that they enhance it, not deteriorate it.

I mean, you're calling for a balanced approach, but ultimately it sounds like you're a fan of a proponent of and believe that this technology is going to progress regardless of whether or not the government gets it right.

Absolutely.

Why did they let you into government at all?