Odd Lots - Why The War On Physical Cash Is A War On Freedom

Episode Date: April 17, 2020

Commerce and payments are increasingly digital. This shift from physical to electronic is one that governments and businesses are eager to accelerate for a host of reasons. But what gets lost when we no longer have access to physical cash? On this episode, we speak with Rohan Grey, President of The Modern Money Network and the research director of the Digital Fiat Currency Institute about how governments can introduce digital currencies that enable electronic commerce, while preserving the privacy protections of physical cash.See omnystudio.com/listener for privacy information.

Hello, Oddlots listeners, it's Joe Wisenthall. Before we get to today's episode, I wanted to let you know that we recorded this interview with Rowan Gray back in early March. So things have obviously changed quite a bit since then, but we thought the interview was still important one to run and actually has quite a bit to say about the role of money as it relates to government, questions of privacy, all things that are going to be important. So we wanted to get it out. But if it doesn't sound exactly timely with the news, Now you know why. Thanks for listening. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, how are things holding up there in Hong Kong these days? I don't know what to say. Most people are still wearing face masks. Lots of people are working from home. I guess it just feels more normal nowadays. So normal-ish, like more normal than it was, say, like a month ago.

Yeah, but I can't figure out whether. or not it's actually getting back to normal or this has just become the new normal. There are a lot of like extraordinary stories that we've been reading about things going on in China, in Asia as people and governments deal with this virus. And one story that's probably not the most important story of all of it, but that was interesting, was the story about the government literally laundering cash. Yeah, that's right. So in order to help mitigate the spread of the coronavirus, there was a moment when the Chinese government was sanitizing its actual cash bills. And it was doing it with, I think it was with UV light, but money laundering, as you say, literally. Literal laundering of money. But by and large, like, although obviously cash exists and cash exists in Hong Kong, etc., mainland China and Hong Kong,

are probably among the most forward economies in terms of really becoming a post-cash society. Yeah, I think that's right. I think I've told you stories before of me going to Beijing and just being almost unable to purchase stuff with cash. When you try to pay for coffee at Starbucks, for instance, with actual money, the cash register lady tends to give you this sort of look of despair and have to go to the back room and pull out a little plastic. bag with change in it because no one else pays it that way. And in the coronavirus outbreak, there's actually an argument that the digitalization of money in China was a good thing because it meant that people could still pay for stuff through apps. Money could still flow through the system. And of course, people didn't have to touch all those dirty physical bills. Yeah, I mean,

it feels like there's a few different angles of this. So one, as you mentioned, and as we just discussed, bills could in theory be a vehicle for transmitting the virus. There was also an interesting story a few weeks ago, I recall, about how authorities in Hubei province, where Wuhan is, the real epicenter of the virus, were able to basically track everyone who had bought cold medicine in the entire province or in the entire city. And it struck me that that is one of those things you can only do if you have a very highly centralized database of essentially every transaction. There is every purchase and be able to tie that to some individual. Yeah, a digital database combined with an intensely powerful surveillance system of government. Sure. Yeah.

So regardless, we are moving and this episode is not really going to be about. the virus per se, but it is emblematic of where we're all going as a society, maybe at different speeds, which is that physical cash is on the way out. And certainly with so much commerce going digital, where there's no such thing as cash in the digital realm, for the most part, excluding sort of independent cryptocurrencies. Cash is kind of a dying thing. I think that's definitely an open question. And I think there is, as you say, this move to electronic transactions. Definitely, China is at the vanguard of this. And it does open up the question of what's the role of cash in that kind of society? In the future, you know, is it going to be like the Starbucks in Beijing where people

have to go to a back room to sort of search for coins to give you change because no one else is using it? Right. And, you know, we see this. push towards cash in different ways. So there's the sort of emergent phenomenon, which is just, hey, payment apps are cool. I like paying for things on Apple pay on my phone. It's extremely convenient. There's aggressive pushes among some sort of intellectual elite to reduce the amount of cash in society. The economist Ken Rogoff wrote an entire book, basically, about why we should get rid of cash. He had a few arguments. One, it's like it's used in crime more than digital money. It also, if we don't have cash, you can't take your money out of the bank, put it under

your mattress. That makes it easier to impose negative interest rates. In India, a couple of years ago in 2016, we know there was the big demonetization campaign where they suddenly forced everyone to convert their high dollar bills. That has had mixed success at best, I believe. But whatever it is, whether it's sort of an emergent phenomenon or a very intentional push by elites, there is this sort of disappearance of the significance of cash in the economy. Sure. Is that what we're going to be talking about today? It is. And I think the key question we're going to explore today is just because it's happening is this good? And do people really want this? Do people really realize what they're

losing with cash? And is there a danger in society if one day we wake up and there's no cash and everything is just purely in our bank accounts. Yeah. And I think that gets back to the surveillance question, of course, when it comes to the coronavirus, it might be a good thing that China can track all the cold medicine purchases because people were paying for them by apps and electronically. But maybe when it comes to some other stuff, you wouldn't necessarily want the government to be able to see your entire purchase history. So big questions. That is exactly right. So without further I want to bring in our guest for today. He's Rowan Gray. Polymath thinker talks about all kinds of stuff, money, modern monetary theory, the law and so forth. He is a doctoral fellow at the

Cornell Law School and he's done a lot of thinking about cash and whether what we lose when society slowly gives up cash as more and more transactions go digital. So Rowan, thank you very much for joining us, really looking forward to talking to you. Why should we care about the existence of cash in your view? Well, thank you for having me. And I think the first thing to note is that the rumors of Cash's demise might be slightly exaggerated. First, I don't think it's just a matter of even convenience or the elites, as my friend Brett Scott has written about at length. There's a deliberate war on cash by certain industries who benefit from the move to digital cash, notably various financial technology and regular financial

industries. There's actually a pushback starting now. Places like Philadelphia have passed laws requiring physical cash. And I think if you look at the history of digital voting and the problems there and the ways that voting experts talk about the value of sort of in-person physical voting, there's a good case to be made that whatever happens with digital, that we're still going to need physical cash as another layer as a kind of fail-safe and should be taking steps to protect that. But I think when it comes to digital finance, and as you say, the world is moving increasingly towards centering digital payments as the primary way of paying. We're in a moment now where we have to make a decision as a society whether the balance of civil liberties

and privacy on one hand, and surveillance control and law enforcement on the other either maintains the sort of uneasy relationship it's had for centuries with respect to money, or whether it moves drastically in one direction away from the ability of average people to engage in any form of monetary activity that isn't surveilled, controlled, and potentially censored on the basis of the interests of political authorities. And I think the really important thing to think about here is that this isn't a question where we should be thinking about it as taking an active step to introduce digital cash, but rather that if we don't do something, the inertia of technology will take away something that we already have. And in that respect, the radical move is to get rid of cash and cash-like services,

not to allow them in the digital world that we're building. Maybe before we go any further, you could explain the relationship between money and governments as it's existed historically, because I think this is probably going to influence a lot of our discussion. But how do you see that relationship? Yeah, thanks. So I, as Joe said, kind of come from a background in modern monetary theory, but I also come from a background in the legal history of money. And scholars like Christine Dazan and Roy Crichtner and others have traced the way that money throughout history has been a tool of public governance

and most importantly, a creature of law. So you can have private actors involved in the making of law. My former law professor, Katerina Pistor, has a whole book out recently called The Code of Capital about the way that private lawyers used various legal techniques to code capital. and make capital instruments. But that ultimately you require some sort of public authority to not only enforce the law, but be the kind of enforcer of final settlement. If you have disagreements amongst private arbitrators or private lawyers, the place that they go to resolve those things is the public courts,

and ultimately some sort of central court that says this is the sort of final decision. So when we look at the way that money works, there is the charterless sort of MMT, that whatever kind of money the state says it will accept in payment of its debts will always have a primacy in any society with a functioning rule of law, because that's the entity that most people are going to find themselves in some sort of relationship with, or know that their friends and colleagues and sort of trading partners are also going to be in some relationship with. But it's also because that entity can choose what kinds of private contracts and private property, it wants to enforce. So there's always been various forms of

private money issued in circulation alongside public money. And some of them have been more or less validated by the state, notably, for example, the turn towards state licensed commercial banks being able to issue money, being considered one of the notable developments towards modern capitalism. But even with various forms of private community currency or private credit, there's always a relationship to state validation, state enforcement, state legitimacy. And if you think about the modern economy today, there's so many ways in which public law and legal governance structures, even the most private relationships, it's impossible to think of a world in which you could sort of even go out into the middle of the Pacific Ocean and

try to create some private utopia without international water law coming into relevance or things like that. So in my opinion, money is always a creature of public governance. It's always an instrument of law. And public law is always the basis for the way that we govern even private actors. Before we go any further, I'm actually curious if we just need to define what cash is. because, okay, I have a dollar bill or a $20 bill in my pocket that's cash. We're going to be talking about it more what cash means in the digital realm. How do you define cash? Yeah, that's a great question.

So I think if you look at the history of money, on one hand, you can look at it in terms of the kind of legal and power dynamics at play. and that's a really important lens. Another lens to look at it is in terms of its materiality. So a lawyer at the Federal Reserve Bank of New York, Joseph Summer, has a line that I like to use or like to borrow, which is money is what payment systems do. And if you look throughout history, there have been two major forms of money that have existed in parallel in sort of combination with each other. One is a system of ledges.

So the economist Hyman Minsky would say you can think of the whole economy as a series of balance sheets and income statements. You could imagine a sort of great godlike master account in the sky where everybody's liabilities and assets have been constantly added and weighed up and moved around relative to each other. But the other one is a system of tokens, a system of what we would call legally bearer instruments where there is no single ledger, even distributors. ledger. There's no ledger at all. It's simply an instrument, a physical thing, or it can be a digital thing that you own, and the act of being able to show that you're in possession of it is proof that it is your asset. And this goes back, actually, interestingly, to the origins of writing itself, about six, eight thousand years ago, the archaeologist, Denise Schman-Beserat, when she started looking at where writing came from. What she saw was that

there were these 3D clay tokens, sort of little kind of shapes and abstractions of various kinds of animals, that people used to use as a form of tax receipt. So not even a tax credit, but proof you paid your taxes, that the tax collector would go around to the provinces, and when you give them the right amount of real goods and services, they would give you a little token to prove that you had paid so that when the time came to sort of do your taxes effectively, you could present these tokens. And what happened was that eventually they started to store these tokens in forms of clay tubes for sort of safe keeping so that the tax collector couldn't steal them or skim off the top.

And then over time, they would start to mark the outside of these sealed clay tubes with with little markings to show what 3D tokens were inside. And eventually they said, you know what, rather than carrying around this tube with these markings, why don't we just roll the whole thing onto a flat piece of clay and put the markings there? And that was the sort of origins of what we now consider writing on a piece of paper. But it began with a 3D token that people would physically hold as an abstract representation of tax receipts, which is not only entirely consistent with the charterist, MMT narrative, but also shows the relationship between even sort of balance sheet accounting

based money and a physical bearer kind of abstract, less abstract money. So we've defined our variables. We've talked about what money is and what cash is. Can you maybe talk to us about the value of cash to governments? Like I sort of get the, I get why cash is important for individuals. You know, you can put stuff under your mattress as we mentioned in the intro, and you can hide certain transactions from the government possibly. So there are privacy issues at play there. But is there any reason that governments should want cash? Yeah, I mean, I think if you were sort of maybe hopelessly idealist, you would think that any government's interest should be to preserve people's civil liberties. As a sort of core feature, people often like to present

civil liberties and law enforcement interests as in conflict with each other, sort of a trade-off between being able to catch the bad guys and let the good guys get away with things. But there seems to be, at least to me in my legal capacity, very little point in having law enforcement if it isn't to protect people's legal rights, and that includes our civil liberties. But to sort of think about the government as an entity as an institution with its own set of vested interests, I think one area certainly is that, at least until recently, the idea of the government maintaining its own accounts was not considered the primary kind of feasible model for an account-based money. Usually there have been various forms of private institutions or delegated institutions who maintain parts of what we could call the kind of common universal ledger. And in that respect, the more power that those entities have over both economic information and payment system settlement, the more the state exists in a kind of public-private partnership with those actors and has to share power.

So having direct cash that goes into individual citizens' hands is a way to counterbalance the power of any private intermediaries the state might be employing. Beyond that, I think that there are sort of technological or technical benefits to having physical cash in the sense that it creates a different kind of infrastructural need or a different kind of infrastructural cost benefit analysis when you have to do things like inject money into an area that doesn't have established institutions, doesn't have established banks or even post offices that can function as banks, or if you're going into a war zone, or if you need to be able to move money into a place temporarily that's not going to have established accountants and established payments intermediaries and then want to leave that place shortly thereafter.

Having something that is sort of instrument out rather than institution in, I think, has its own unique benefits depending on the use case. And that that's something that throughout history, for example, has been very useful for states with potentially moving borders. So if you think about Europe and the sort of maps you see about the evolution of various European political units, and they kind of every five years, the whole map is rearranging. Requiring the same entity to be accountable in the exact same way to a public authority might be unfeasible or at least quite difficult, whereas having an instrument that can

sort of do the work of validating itself in people's pockets creates a very different kind of set of costs and potential. So something I'm curious about is that, you know, a lot of the people who are most interested in this topic, the idea of censorship-free payments, the idea of bearer assets that people can hold on to for person A to transfer to person B without worrying about person C overseeing it, are people who are involved in the non-state cryptocurrency realm, bitcoins and so forth. And then a lot of people who are sort of interested in working within the existing system, including many MMTers and Keynesians and people who otherwise accept that public money is an important thing, that public institutions are good, tend to be more skeptical

of their worldview. And so I'm curious, you sort of bridge the two. And I'm, what, do you have a hard time in the circles that you deal with on the public money front, arguing and convincing people that these sort of a crypto perspective on money, at least from a privacy and censorship standpoint, is something that they need to internalize more seriously into their worldview? Yeah, that's a great question. I think there's been a lot of, I'm not going to say trauma, but a lot of skepticism in part precisely because the people that they usually associate these kinds of ideas with are the kinds of people that could be considered either libertarians on one hand or money cranks on the other. And so the minute they even hear the

word digital currency or cryptocurrency, they sort of think you're one of those people. But a lot of the people, I think, who do come from an MMT point of view do so because they care about the empowerment of individuals relative to the state. I mean, for example, a job guarantee is, at least in my opinion, a way of reclaiming power for individuals, even against the state, and saying, you know, I have a right to a job. This isn't something that the state can arbitrarily deny me. So even though you're relying on the public institution to provide the job, you're doing it in a way that's designed to transfer sort of relative power away from the center and towards the periphery. So once you explain these ideas, I think it's often quite possible to get people

on board. It's just that it is new and that it's hard enough for the average person to get their head around 5,000 years of monetary history and macroeconomic theory and central banking operations to then add on sort of the entire world of technologies. It's a lot to bite off as someone coming from a background in law and now money and finance and now moving into technology, there's a lot of technical competencies to juggle. But I would say that the MMT community has been very open and warm to at least trying to incorporate these ideas as it evolves and grows. For example, it had my friend Brett Scott as a keynote speaker at the International MMT Conference two years ago in Kansas City, which I don't think would have happened if there was a sort of antipathy towards these concerns.

I think one of the challenges is that, you know, not to get too crude, but on the kind of two-dimensional political axis, a lot of the MMT focuses on economic equality. And so it's that kind of left-right spectrum. And often to make the case in favour of economic equality involves making a case for the benefit for the benefits that can be gained from collective governance. So you're often in a position where you're defending the state against people that say the government can't do anything good. So to be able to hold that thought in your head simultaneously as saying, yes, the government is a necessary engine for social justice and equality, but also maybe we shouldn't be trusting it

with all of our hopes and dreams and forgetting historical moments when the state kept a list of everybody, everybody knew and where everybody went. And the problems that came from that, whether that was right-wing governments or left-wing governments, to keep that kind of left-libertarian, libertarian, socialist, anarchist kind of framework in your head, as well as making the case for collective government, democratic socialism, etc. It often feels like just another priority for people, and they often might say, well, that's great, but that's not my area. And I do try to kind of bang this drum, and I think that Michael Cario, who works in a lot of kind of consumer-oriented financial regulation issues, is banging this drum quite a lot as well. And I think that you're going to see more and more attention to this as a lot of the finance scholars start to focus their attention on digital currency.

So just to press on this issue, because this is exactly what I was tweeting, about earlier. But if you think about one of the use cases for cryptocurrencies that comes up a lot, it's this idea of censorship-free digital money that's sort of outside the grasp of existing governments or power structures. If crypto went mainstream enough, or if crypto adoption were really widespread, would that diminish the monetary sovereignty that allows MMT? to exist theoretically or be effective? I don't think so at all, actually. I understand why that's a concern,

but I think that this is one of those examples where a much richer understanding of the kind of way that law drives public money's value, often when MMT is talk about, for example, taxes driving money, and what you'll see when you read those sort of scholarly pieces is they'll say taxes includes fees, and fines and court judgments and a whole range of what might be technically called non-reciprocal,

hierarchically imposed obligations from the state. But it often in people's minds comes across as sort of a quantity number so that you need to have a quantity of taxes, 10 taxes, to impose a demand of $10 on the economy. But the way I think about it as a lawyer is that the state is simultaneously in creating and enforcing every property right and every contract right that the entire private sort of market-based economy relies upon to operate. And that's before we get to things like limited liability corporations and banking charters and things like that. So that in reality, it's not just a matter of the sort of tax bill you get at the end of the year where you can see a particular number that represents the sort of tax-driven money value. It's this much more kind of

risk liability cloud that exists in a state of probability at every point in time. If I walk down the street, I could potentially knock somebody over accidentally if I'm not paying attention. If they break their shoulder, then they could sue me. And then under, you know, principles of tort law, I could be liable to pay them damages. I could drive down the street in my car and the same thing could happen. You know, somebody could come onto my property and I could fail to have a sign up. All of these create a formal legal liability risk that's a sort of fog that we're just living in all the time. And because that fog is always sort of positively valued, we don't ever exist in a state of zero legal liability risk, that it doesn't, it doesn't reduce down to your

tax bill to think about why you're going to need public money. But even more broadly than that, we've had a lot of forms of private money throughout history operating in circulation alongside public money, and it hasn't ever provided that kind of challenge. And if you think about the way that things like tax havens or Swiss bank accounts work today, it's actually the richest and most powerful and largest pots of money that require state protection the most. I often like to joke that if you really wanted to kind of get rid of tax havens, one way to do it could be to just say, we're not going to enforce any legal sanction against anybody that steals assets above a certain amount of money that haven't been declared. So if you want to go with your

kind of hacking skills and go after the Cayman Islands bank accounts, go for it. It's open day. We will not stop enforcement. We will not try to, you know, prosecute you for theft or anything else. And I think if you started to see that kind of use of legal power, suddenly a lot of entities that like to think of their wealth as private are going to realize just how dependent upon the public legal system they are to protect and support that wealth. I love that. I love that framework. Let's talk a little bit about what you're envisioning in terms of state digital cash. So right now, if I want to, like if I visit Tracy in Hong Kong and we go out to dinner together, maybe I split the check and I'll like, you know, use whatever app

that's on both of our phones and pay her. That's not cash because that the money that I have in, say, my Venmo account is really just a liability of Venmo. And if I transfer it to Tracy, then that's her liability of Venmo. It's not a bearer asset. What would it look like for me to have a true digital dollar? Something that is pegged. one to one against the dollar, but that is not a liability of some bank or some fintech company, but something that I actually control and can move around at my will. Yeah. So if you think about, I would sort of divide up digital currency infrastructure into sort of three pillars. You've got accounts. You've got credit. And then you've got cash.

And with respect to cash, the critical part to me is that the two different wallets, whatever sort of hardware and software combination that is holding these instruments, can effectuate a transaction with each other according to a set of predetermined rules. So we can call that a protocol in the same way as you create the TCIP protocol for the internet or the SET MTP protocol so that emails know how to talk to each other. So you create some sort of wallet system that can identify each other with a handshake, so regular public pre-encryption, things like that. And then the way that the wallet balances work,

and this is the sort of way that I think about it is that is different from transferring money from one account to another, is imagine it in terms of getting change for physical cash. So if I go to a bank and I'm wearing a money, wearing a balaclava and I don't get knocked over and arrested by the security card for wearing a balaclava in the bank. But imagine I walk into the bank with a balaclava and I have a hundred dollar bill. And I asked the bank teller to give me five-twenties. I don't need an account of that bank to do that. Now, maybe there are laws that say I need to sort of show my ID after a certain amount of money. But at this point, at least technically, the bank

is only engaging in money exchange, giving five-twenties for one hundred, and you. is just changing the physical structure of the money. It isn't moving the money around. Now imagine you and I together walk into the bank, both of us wearing a balaclava, and I have $50, and you have $50. I'm not going to do that, by the way. Yeah, you know, I wouldn't recommend it.

I didn't give legal advice very often publicly, but my legal advice would not to go into a bank. Don't walk into banks wearing a ball of clava. Okay, keep going, keep going. But say this was Amnesty Day and you did go in, and you had a $50 bill, and I had a $50 bill. And we walked up together and, you know, we put a piece of paper down so they didn't even know our voice.

And the piece of paper said, please turn these into 520s. So instead of a $100 bill, there's two of us with two different sized bills, or the same size bills, and we go in and we ask for them to be exchanged. Now they give us back those 520s, but instead of, we can't split them equally, so I take two and you take three. So you walk out with $60 and I walk out with $40. The effect of that for you and I is that we have transacted $10, right? But the effect from the bank teller's point of view is the bank teller has exchanged $100 for $100.

It doesn't know who we are, doesn't know what that transaction was for. Theoretically, you could wait outside, and I'm the idiot with the balaclava, so I walk in, and I get the $100, and then I walk outside and I drop $40 on the floor or $60 on the floor, and you pick it up and walk away. But the point is that from the point of view of the authority, of the central entity there, the only thing it's doing is, A, validating the no double spending rule, so $100 walked in, $100 walked out, and B, it's changing the relative size of different wallet balances. And that, to me, is the way that you can conceive technically of a system where the protocol between us,

the set of rules between us can ensure that there is a protection against counterfeiting and that the two actors know each other, but that they don't know any more information that they need to, and an actual transaction being taking place that needs to take place. So if you think of the bank teller there as rather than a human being, but just a robot, and that robot is not even a third party, but rather a set of protocols that the two wallets need to, agree exactly on before the transaction will take place. Then you've got a system where the only thing the government really needs to be able to monitor is that no new instruments are being created relative to the number that are already in existence. And that's very different to approving transactions.

So the notion is that you could create this protocol that would basically get over the surveillance or the privacy concerned. Yeah, what you would do is you would have some sort of approved hardware, and it doesn't have to be centrally issued. It could be a white label kind of generic, but based on certain conditions that every wallet had to meet a combination of hardware and software. So if you think about email right now, you and I can send information over the internet, and depending on how we structure that information, it can be read by a web browser. or it could be read by an email server. But if you send it in the wrong format, the SMTP servers can't communicate with each other

because one SMTP server, one email server, will not recognize the information you're sending as information to receive for an email server. Sort of like little kids with little blocks that are shaped like stars and circles and squares. If you try to put the square through the star block, it just won't go through. So you can design the protocol in relation to the wallets

in such a way as to say, The only kinds of transaction that will go through is a transaction that meets these criteria. And one of these criteria can be, we have to be able to do a handshake with each other using public keys. Another will be, it has to show that A plus B on the wallets on one side equals C plus D on the wallets of the other side. And the protocol doesn't even need to know how much those balances are. It just needs to be able to waive them in a kind of encrypted sense.

and then it needs to be able to say that once the transaction it's done, it's final, and there's no record of it except on the wallets themselves. And you can design something like this where the wallet balance is actually kept at home. So I'm a what's called a network manager. It's sort of like an evangelist for a non-profit foundation called the Freedom Box Foundation that was designed, founded by one of my old war professors at Columbia, Eben Moglan, who was one of the people that really got me into this privacy issue. He lost a lot of members of his family in the Holocaust, and he said to me in a law school

class in first year of law school, next time they come for my family and they will, they'll get every single one because they'll know exactly where we are, and they'll know exactly who we're talking to. And that hit me like a ton of bricks and scared the hell out of me, to be honest, which is why I've spent a lot of time trying to think about these privacy issues on top of the other issues of economic justice that I already cared about. But he built this Freedom Box Foundation as a way to develop a bunch of free software, free and open source software that's privacy respecting, that you can put on tiny little computers,

little chips that are about the size of a phone charger, and that you plug in at home, and they use barely any power a year, like three or four dollars of power a year, and they provide all of the kinds of quote unquote cloud services that people rely on the big centralized financial technology companies for. So web server, file server, social media, all those kinds of things. And I run one at home now. I use it for, you know, the equivalent of Dropbox. I use it for the equivalent of Slack with my nonprofit. It's called Riot and it works exactly like Slack. I use it for a VPN to get into my home, you know, internet when I'm out surfing the world. There's a whole range of turnkey, extremely easy to use pieces of software that it's incorporated.

But you can keep this box at home, which means police can't access it without a search warrant. It's got Fourth Amendment protection, to the extent that Fourth Amendment protections still mean anything. And you can tunnel into that with a secure tunnel from your phone or from anything else. So it wouldn't be simply a matter of having digital cash on your phone. and then if your phone gets stolen, you've lost your money, you'd be keeping your money literally under the mattress, literally, in the most sort of, you know, my grandmother doesn't trust the government kind of way,

but that under the mattress would just be a tiny little phone charger that's plugged into the wall, and your phone would be tunneling into it, like a client tunnels into an email server today. And that gives you some degree of freedom and control. And to be clear, I don't think that this would, replace all kinds of accounts, you know, in the same way most people, perhaps outside of certain demographics, aren't walking around with $10,000 of cash as their entire life savings in the

inner ward in their pocket. But it means that at least we have kept that layer of the payment system from disappearing forever and from that possibility of civil liberties and privacy from disappearing forever from our vocabulary and our political identity. So how much of the money network that you just described this notion of a common protocol, how much of that depends on building consensus for it to actually work well and work specifically across borders? Because we're talking, of course, about monetary transactions, which tends to be one of the most regulated, most sensitive of topics in the world, especially international money transfers.

So how do you build consensus towards that? And would it still work if people had different ideas of how the protocol should actually be? Yeah, I mean, I think the first thing is that this would likely not become the primary vehicle for large institutional money flows. And I think that's the right answer. So in the same way, as I said before, you know, there's a difference between sort of caring about individual private transactions and caring whether super rich people get to store all their money in Swiss bank accounts. There's a difference between what I consider to be the economic privacy of individuals and the civil liberties of individuals and the rights of large corporations to have, you know, bank accounts or huge stashes of money that they are. essentially don't have to declare or that aren't surveilled. And to the extent that those kinds of entities are already kind of public entities in the sense that corporations have to

submit filings and other things as a condition of having a limited liability charter, I think it's entirely reasonable for those kinds of flows to be more visible and to be regulated under sort of traditional privacy laws alongside the kinds of wars that, the kinds of laws that that might protect cash for individuals. In that respect, I think, you know, what you're mostly going to see is the same kinds of back-of-house central accounting to manage those large transactions as we have today, but that the push for cash can become the tip of the spear for a larger rethinking of privacy issues with related to payments that is starting to happen already as a a result of the broader privacy kind of debate sparked by people like Edward Snowden and

the kind of censorship debate that you're seeing around things like the payment sanctions on Iran, when it's very clear that the NSA doesn't care about any kind of crypto or other form of privacy of financial transactions, even after claiming they would never break the cryptography of the monetary system. And when it's clear that whoever controls the pay, and system can control, you know, access to basic goods in countries that you need to start having a very different kind of conversation about how that works internationally. But my kind of thinking about this is that there is probably a reasonable balance to be had in terms of scale and scope of these digital wallets.

I wouldn't argue for that on day one because I don't think you argue for what you want by sort of capitulating to the center of the negotiation on day one. but that right now we do have limits on the size of physical bills. We don't have a billion dollar, you know, paper bill. And I think that's probably okay. And to the extent that there was some sort of quantitative limit on these kinds of wallets, you know, probably maybe $1,000, $2,000 you could imagine, maybe less, maybe $250, the Central Bank of Sweden, which is probably the central bank

who's considered digital currency in the context of anonymous cash that can work, you know, basically offline, off grid between two wallets. The most has been talking about having the cash layer, the e-cash layer, as something limited to sort of $200 to $300 to $300 worth of Krona. Although we'll see how truly anonymous and decentralized that model will be, depending on the technology they choose to adopt or implement. But I think you could imagine something where, you know, what you're essentially talking about is, is closer to the act of taking a couple of hundred dollars in your pocket on the plane than it is of really altering the core dynamics of international payments flows.

We hear things all the time about central banks and governments talking about their own digital currencies, and it's very hard for me to wrap around or wrap my head around what they're going for. So, for example, you hear about the PBOC doing a digital renmin B, and my gut feeling is that this is not about some incredible urge for consumer privacy. I suspect that they have something else in mind. Other people might talk about it. I suspect cynically, but maybe less cynically, like they just want to sound interesting on a panel somewhere by sounding cool

and getting to use the word blockchain and their official line of business because that's probably going to make them sound interesting or something like that. how much of the conversation that you hear regarding central bank digital currencies really is the result of people thinking along the lines of what you're thinking, which is that if we don't have some sort of central bank digital currency, if we don't have a true digital cash, then something that people value could truly disappear before they ever had a say so in its disappearance. Yeah, so I mean, I will give a shout out to, in addition to Brett Scott, who I've mentioned a few times, to the group of positive money in the UK, who, you know, I've had some disagreements about their theories of money before, but they've been writing some really important policy papers around the case for cash and, you know, having digital cash. And I think that they're one of the few, you know, interest groups that have a large degree of influence at a national level that are really taking the cash dimension of this quite seriously. I really would love to see a lot more. involvement from privacy people. And I would really, you know, although I'm not holding my breath, love to see a lot of the crypto-libertarian crowd to focus their attention on public money rather than the sort of inferior private monies because I think a lot of them are motivated by good concerns when it comes to civil libertarian issues. But they are sort of hamstrung and

sent in the wrong direction by their sort of libertarian theories of money, unfortunately. But I don't think that the vast majority of people who are involved in this discourse are really coming from a privacy-centric perspective. No. And I think that that's a self-reinforcing phenomenon because most central bankers are not civil libertarians or lawyers. They're people who did macroeconomic modeling, statistical modeling and graduate school, and wrote a bunch of math papers and then got into this world because they're interested. in thinking about how you can move one or two big levers and move the entire economy. I mean, I understand that motivation. I think there's a lot to be said for that kind of work, but it's a kind of inherently centralizing kind of public planning mentality. My advisor, Robert Locke, likes to say that central banking is the last refuge of central planners.

And you don't often see that much overlap between central planners and civil libertarians, unfortunately. But I think the debate over central bank technical design of this, and you can see this all the way from the Bank of International Settlements famous money flower, to the many hundreds of almost identical papers that you can read from different central banks on the future of digital currency. They usually frame it in this sort of dichotomy between token-based and account-based money, which, you know, going well so far. But then very quickly, you read it and the part that talks about tokens is usually some sort of distributed ledger, which is not a token-based system at all. It's just an account-based system where you sort of have a slightly decentralized set

of accounts. So one of the people who's made the case for central bank accounts for all the best, my friend Morgan Ricks. And for the record, I agree that we definitely need central bank accounts for all. We were just having this conversation on Twitter the other day, and he said, well, you know, you, Rowan, are one of the only people who actually means it when they say they want a token-based system, because mostly when I read about that stuff, they're just really talking about other forms of accounts. And I said, yeah, look, if all you read was that stuff, I would agree that it sounds like it's a

tweedle-D, tweedle-dum fight. You might as well just go central bank accounts for all and just ignore the rest of it. But there is this other debate. There is this other set of issues. And the reason I'm kind of trying to sound the alarm is because we are not going to have another chance to relitigate this the next time around. Once we build an infrastructure for the future of digital public money that is built around centralized accounts and doesn't have a space for a token-based cash-like instrument, it will be too late to unring that bell. We will not go back 40 years from now and go, whoopsie, and get to rebuild the whole thing. So this is a moment, like with the kind of building of the internet, where we are the last generation

that will remember that there was a choice to be had here. And we have an obligation, in my opinion, to do something. So to go to your question about China, I was visiting China and went to the PBOC and spoke to the people who had their monetary payments division only at the end of 2019. And they use a term there that they call managed. anonymity, which means anonymity between payments operators and between, you know, people on either side of the transaction, but no anonymity to the central government. And I'm always reminded of when you go on Facebook and there are privacy settings. And it says, you know, choose who you want

to see your posts. But there's never a button that says, well, I would like Mark Zuckerberg not to see my posts. He gets to see everything. He's like Tom from MySpace. He's the first friend of the last friend on your friend's list every time. So the central bank of China is absolutely building a system where they are your first and your last friend and they get to see everything. And they're going to frame that in terms of law enforcement, just like the NSA frames surveilling everybody in terms of law enforcement. And they'll use the most heinous, sort of morally objectionable cases that they can think of for shock value. So it will be terrorism. It will be, you know, money laundering for big criminal gangs. It will be,

child pornography and sex trafficking. And they will use those as a justification for saying, well, this is why we need to be able to see everything everybody does all the time. And what China did do with this is have a massive industry of mobile payment companies. We chat in Alipay that were just completely dominating. And they recognized, to their credit, that this was an unstable, inferior a form of money and was carrying a kind of shadow banking-like risk because these large mobile payment companies were building their entire payments infrastructure on top of the regular banking

system. Like if Venmo suddenly had a float the size of the entire money market mutual fund industry before 2008, you go, well, wait a second, mobile money is going to be the new shadow money that could collapse if something goes wrong. And they, within the space of sort of a couple of years, required those entities to get direct accounts at the central bank and then to back those accounts one to one with central bank reserve dollars. And I think the next step you're going to see is they're actually just going to collapse those two layers entirely so that the money going through those sort of mobile money wallets will be directly central bank issued money. And that's the final step of what they're building, I think.

Rowan Gray, that was a truly fascinating conversation. Thank you very much for joining us. Thank you so much for having me. Tracy, I really like that episode. I feel like Rowan brings such a range of insights, whether it's into the specifics of how money works, how law works, the sort of civil libertarian bent that he has. it's a very different perspective than almost anything we've heard so far in some of the conversations we've had about what money is or some of our cryptocurrency discussions. Yeah, I was about to say exactly that. It's such a different position to be coming from. And he's really bridging that space between cryptocurrencies and MMT, which kind of naturally you would think wouldn't work. But there does seem to be some overlap.

The other thing I was thinking about is the distinguishing in the cash system between ledger-based accounting versus that sort of token-based system of payment is a really nice framework to sort of explain the difference in privacy concerns for digital payment systems. I really like that framework. Yeah, no, that's exactly right. And then the question of, can the state really offer a digital token? version. I mean, the nice thing about cryptocurrencies is we know them, one thing they've proven is that you can have a digital token. And that was sort of Satoshi's breakthrough, which is that I can own something or I can control something that's digital that nobody else has, because of course, digital, you think file sharing replication difficult to own. So that part has been

established. Now the question is whether the state, in theory, or central banks can apply that same principle, which they already accept with physical cash to the digital realm. And I think Rowan makes a really compelling case that they should. And I love his point about like, now is the moment. Because if we don't build this now into the money system of the future, 40 years from now, when all the infrastructure is in place and everyone is purely on digital apps and maybe the apps are collapsed and that we're only using central bank money, the time will have been we won't be able to easily reverse engineer a token element of the digital money system. Yeah, I kind of wonder how many of the libertarian crypto enthusiasts will heed his call to maybe, you know, work with central authorities to figure out some form of public digital money.

I don't know. It seems like that might be a big ask, but you can see his argument. It's a lonely battle, right? Because among like the people who believe. in the legitimacy of public institutions, there's a lot of skepticism towards the sort of, you know, sort of extreme civil liberty, maybe anarchist bent about individual behavior. And among the people who care about that stuff primarily, there is not a lot of people who believe in a strong public institution. So I applaud Rowan's lonely path on this and hopefully more people take them up. Yeah, the common area in that Venn diagram is pretty small. It might only be Rowan in fact. It might only be him.

All right. Okay, this has been another episode of the A-Blots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthal. You can follow Rowan on Twitter at Rowan Gray. Also, he has a book coming out in January 2021 titled

Digitizing the Dollar, the Battle for the Soul of Public Money in the Age of Cryptocurrency. Definitely going to be a must read. So check that out. You can follow me on Twitter at The Stalwart, and you should follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today, and check out all of our podcasts on Twitter at the handle at podcasts. Thanks for listening.