The Breakdown - The Fed Chair and the Treasury Secretary Come Out Against Privacy-Respecting, Anonymous Digital Dollar

Starting point is 00:00:00 the unique X-factor that never existed before, the ability to opt out of the monetary regime you disagree with, i.e. Bitcoin. For those out there who only want to focus on that, I completely appreciate it. However, I think you can do that and something else simultaneously. There is no reason that a digital dollar should not preserve financial privacy just like cash does. In fact, there are many legal reasons, constitutional reasons that it should. That's a conversation that Bitcoiners can be powerful allies for, but not if we don't engage. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world.

Starting point is 00:00:41 The breakdown is sponsored by nexus.combe, and Exodus, and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, March 25th, and today we are talking about the Fed Chair and the Treasury Secretary coming out against a privacy receipts. respecting anonymous digital dollar. First up, however, let's do the brief. First on the brief today, Fidelity becomes the latest to file for a Bitcoin ETF. Yes, Fidelity have added their hat to the ring as the sixth live ETF application. I jokingly tweeted yesterday that I think the SEC is going to have to allow one just because they get sick of reviewing them, and I don't think that's far off. The Wise Origin ETF has FD Funds Management as the sponsor with Fidelity Service Company as the administrator and Fidelity Digital Assets as custodian. Here's a fun Easter egg as well. Alex Thorne, formerly of Avon

Starting point is 00:01:36 Ventures, which was a Fidelity Investment Group, pointed this out. He tweeted out, Fidelity's Bitcoin ETF is named Y's origin. Why? Satoshi in kanji means wisdom or sense. Nakamoto in kanji means base root or origin. Pretty lit, if you ask me. Interestingly, this wasn't the only ETF news. Apparently, Goldman Sachs also filed for notes that pay out to an ETF that may have exposure to Bitcoin or crypto's. This is definitely toe-dipping compared to what Twitter excitedly reported from the start. But still, Fidelity and sort of Goldman getting in on the Bitcoin ETF game in the same day is pretty epic. Next up on the brief today, an interesting story that shows everything from consumer habits to global interconnectedness

Starting point is 00:02:22 to the difficulty in peeling away the U.S. from China. According to Alian's SE, about 360 billion of the stimulus package, $1.9 trillion overall, remember, will be spent on imports. Of that, about $60 billion could go to China. Yes, we could be just stimulating the Chinese economy. Why? Well, of course, consumer goods. $1,400 in the pockets of consumers means computers, clothing equipment, and more. The OECD, in fact, says that the stimulus could increase China's GDP by 0.5% over the next year. Bloomberg Economics estimates that a 1% boost in U.S. demand adds about 0.08% to China's GDP. What's more, all of this could show up as an additional inflation threat from Bloomberg. There's already concerns in the U.S. that the stimulus and expected economic rebound this year

Starting point is 00:03:08 could lead to faster inflation there, with Treasury yields surging in recent weeks. An increase in imports from China combined with the recent rebound in Chinese factory prices, mean American consumers could start paying more for their goods too. I mostly think this is interesting to note because we so rarely think about global economic interconnectedness in precise terms, where we can work. watch the flows of money and see how it impacts economies so precisely. Speaking of global interconnectedness, third on our brief today, we have to talk about the Suez.

Starting point is 00:03:40 So this Suez thing started as a wild meme and has now moved into the category of actual meaningful pain for the global economy. For those who have somehow avoided the internet for the last few days, on Tuesday, a 400 meter long vessel, one of the world's largest container ships with a capacity for something like more than 20,000 20-foot equivalent containers got wedged in the Suez Canal. Perhaps the world's most important shipping route. Three days later, efforts to refloat the ship have not worked. What this means in practical terms, there are currently roughly $9.6 billion worth

Starting point is 00:04:15 of daily marine traffic halted. Lloyd's List estimates westbound traffic is worth about $5.1 billion a day, while eastbound traffic through the Suez Canal is approximately $4.5 billion. What's more, Lloyd's estimates that there are 165 vessels currently stuck, while Bloomberg guesses it's more like 185. Of those, 40 or bulk carriers, 35 are container ships, 32 or general cargo ships, 17 are chemical and product tankers, and 17 are crude oil tankers. This could impact approximately 13 million barrels of crude oil. And what's more, when you combine the ships currently stuck with those that lists Suez as their next destination, it's 300 vessels globally. Now, fascinatingly, there is a larger dimension to this story as well. On the one hand, this was a fluke accident.

Starting point is 00:05:01 But on the other hand, according to a piece by Joe Wisenthal this morning, there has been a relentless push over the last few years to build bigger and bigger ships to get more efficiency in the transportation industry. It turns out, this scaling worked really well when you were moving from 2,000 containers to 3,000 containers. When you got past 17 or 18,000 TEUs, which is the designation for 20-foot equivalent units, that's when things seem to start to get too big. You started seeing delays, issues at ports, et cetera. And one result is that as supply chains have gotten so screwed up due to COVID, it's actually the smaller, faster cargo ships that are winning. So there's something deeply emblematic here about the big push-the-boundaries economy of scale ship getting stuck while

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Starting point is 00:07:15 Take control of your crypto and download Exodus today. Visit the App Store or Google Play to download. Or visit exodus.com for more information. With that, let's shift to our main discussion. I've been covering the digital dollar on this show a lot because there has been a lot to cover. This comes in the form of both one actual news, such as the announcement this week that the Boston Fed and MIT would be debuting two prototype designs by the beginning of this summer, as well as two analysis of statements of key public officials. As I said a couple days ago, a lot of this has to do with a change of administration, a change of power, and an attempt to understand where we're headed. I mentioned on yesterday's show that Wednesday was day two of congressional testimony from Janet Yallen, the Treasury Secretary, and Jerome Powell, the Fed Chair.

Starting point is 00:08:00 Ostensibly, this was about economic recovery and was mandated as a part of last year's CARES Act, but also gave legislators a chance to ask any questions about topics they found important. One of those questions came from Representative Bill Foster, a Democrat from Illinois, who is notably the co-chair of the Blockchain Caucus. he asked if they were on the record about opposing an anonymous digital dollar and here's what they had to say. I believe that both of you are on the record is acknowledging that an anonymous, untraceable digital dollar is not a viable option for our country or the free world because its ability to be abused for money laundering, terrorism, financing, ransomware and so on. Is that principally correct? I don't think I am on the record for that, but I'll go on the record now. I would agree that we need to be very careful about the use of a digital currency for illicit

Starting point is 00:08:56 finance and an anonymous currency makes that much harder to control. Now, of these responses, Yellins leaves herself a little bit more room to navigate. Her stance, as she said it, is that anonymity makes the issues at hand much harder. At least, however, that gives some room to keep in. anonymity knowing that the work is challenging, but it's worth it. Powell being so aggressive and so quick to agree that this is something that he wants to go on the record for is much more concerning. This is not an ideal format for really understanding someone's key position because it's so short, and there was, I guess, sort of, a counterpoint in another statement of Powell's, where he basically

Starting point is 00:09:39 said, at least it won't be as bad as China. Quote, the lack of privacy in the Chinese system is not something we could do here. We're only beginning to think carefully about these things, and it's going to be a careful, detailed, and probably lengthy process of consideration. If that is the case, if Powell is so concerned with a careful detailed and probably lengthy process of consideration, in order to think carefully about these things, such as privacy, why would you be so quick to go on the record against an anonymous system? Especially in a world in which the U.S. economy that has achieved so much is founded and predicated on cash, an anonymous system. So where did I hear about this exact statement? It actually came from Rohan Gray. Many Bitcoiners will know Rohan is one of the

Starting point is 00:10:24 co-authors of the Stable Act, which stood for Stablecoin tethering and bank licensing enforcement act. The Stable Act was a counter reaction to much of what Brian Brooks had done at the OCC, and which in general, paints private stable coins as a massive threat to financial stability and individual end users. These are obviously not things I agree with, and I did a whole show about why I thought the Stable Act was so wrongheaded last year when it came out. Rohan is definitely not an Austrian economist, nor sound money proponent. He is a passionate fiat defender of the modern monetary school and is not afraid to wade into debates about it on Twitter. However, I have found that there are lots of things that Bitcoiners are interested in the future of the financial system, and one of those

Starting point is 00:11:03 is fundamentally privacy-preserving technologies. On Tuesday, CoinCenters Niraj Agrawal tweeted, the odds of a government making any kind of digital dollar thing that isn't a financial penopticon seemed pretty low to me. Someone responded that, even if so, we should fight against it. Quote, even if you're right, the governments are likely to try to build digital financial panopticons. I'm wary of conceding that at the outset. If they want to propose a dollar surveillance coin, we should push back on it. I know you and CoinCenter will, and I bet broader population will oppose it too. Rohan waded into the thread and said,

Starting point is 00:11:38 quote, more importantly, in my opinion, if the political battle for a right to anonymous public money is lost, there will be no chance in hell for asserting the right to anonymous private money. Some crypto people think that the tech will be so uncensurable that it doesn't matter what the government wants. So first, a comment on that last point that crypto will be so uncensurable that it doesn't matter what the government wants. I've spent a lot of time on this this year as well.

Starting point is 00:12:02 Can the government ban Bitcoin? I've shared a variety of different opinions and why I think ultimately banning is not exactly the right mental heuristic and why I agree with the notion that you really don't ultimately ban Bitcoin, you ban your citizens from using Bitcoin. At the same time, I also strongly agree with another Niroj tweet where he said, quote, the let them ban it, Bitcoiners, don't seem to appreciate my position of, it would be better if they didn't, though. But back to the other part of Rohan's tweet, the idea that if the right to an anonymous public money is lost, it will be impossible to win the right for a private money. I think a counterpoint from Bitcoiners would be that you don't win the

Starting point is 00:12:38 right to a private money, you build it in such a way that it doesn't need to have the rights one for it. However, if we go back to this position from Niroge of, it would be better if they didn't try to ban it, though, I agree with the sentiment that if you care about privacy, it is worth taking part in the discussion of how a digital dollar is designed. To me, the digital dollar is absolutely inevitable. The benefits are simply too big. More dynamic, monitoring. monetary policy, less friction in payments and taxation, the ability to hit underserved and underbanked populations, not to mention the potential that it helps the dollar retain its world reserve status for another generation. Remember, the game that China is ultimately playing with their digital

Starting point is 00:13:19 yuan is to create a tool that is so much more convenient than other settlement systems that it wins out over skepticism of China's currency as trustworthy. Right now, there is no denying that in the world, the most demanded and desired currency is the U.S. dollar. It's why there's an entire euro dollar and shadow banking system. Digital dollars completely change the equation around that euro dollar system in ways that could give the U.S. massively more control. So the point is that I'm nearly positive a digital dollar will happen. And given that, I think it is completely coherent to do two things simultaneously. First, work incredibly hard to build the opt-out, the unique X-factor that never existed before, the ability to opt out of the monetary regime

Starting point is 00:14:02 you disagree with, i.e. Bitcoin. For those out there who only want to focus on that, I completely appreciate it. However, I think you can do that and something else simultaneously, which is trying to shape public discourse around a digital dollar in such a way that it is closer to cash than the IOUs of your credit card company, money that you don't actually control, and that ultimately can be censored, stopped, and otherwise taken away from you. There is no reason that that a digital dollar should not preserve financial privacy, just like cash does. In fact, there are many legal reasons, constitutional reasons, that it should. That's a conversation that Bitcoiners can be powerful allies for, but not if we don't engage. If we do engage, however, we might find ourselves

Starting point is 00:14:42 with some strange bedfellows. The clip that I played earlier came from a Rohan Gray tweet. Alongside it, this MMT-er, Stable Act writer, said, the Fed Chair and Treasury Secretary both opposed the idea of a privacy respecting anonymous digital fiat currency. This is very bad and should be vigorously resisted by anyone that cares about resisting the surveillance state. I'm pretty ready to stand with anyone who cares about resisting the surveillance state, and I think the digital dollar could be about as big playing field for that fight as anything we will see in the next few years. Anyways, guys, I appreciate you listening. I truly cannot believe it's not Friday. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - The Fed Chair and the Treasury Secretary Come Out Against Privacy-Respecting, Anonymous Digital Dollar

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