Unchained - Christopher Giancarlo: Why the US Needs to Have a Digital Dollar - Ep.177

Episode Date: June 16, 2020

At an event at the NYU Stern School of Business, Christopher Giancarlo, former CFTC Chairman and co-founder of the Digital Dollar Foundation, discusses his proposal for a US central bank digital currency (CBDC), and how that fits into the broader geopolitical environment. We cover: Why he has focused on pushing for a US digital dollar after leaving the CFTC How a US CBDC would be different from other stablecoins How the proposal is designed to build off of the traditional banking infrastructure What pilot programs would look like How a digital dollar would foster economic inclusion even though using the digital dollar requires owning a smartphone How it would handle privacy How the network would be secured Whether the US is falling behind China in terms of central bank digital currencies and blockchain exploration Whether Libra will be a proxy for the digital dollar How COVID-19 has affected the discourse around a digital dollar Whether the election will affect the future of the digital dollar Unchained is hiring! Check out our job listing for a remote editorial assistant here! https://unchainedpodcast.com/seeking-remote-editorial-assistant/ Thank you to our sponsors!  Crypto.com: https://crypto.com Kelman Law: https://crypto.law   Stellar: https://www.stellar.org Episode links:  Chris Giancarlo: https://twitter.com/giancarlo Digital Dollar Project : https://www.digitaldollarproject.org Previous Unchained interview with Chris: https://unchainedpodcast.com/christopher-giancarlo-on-the-craziness-of-becoming-crypto-dad/  Chris and Daniel Gorfine’s WSJ op-ed advocating for a digital dollar: https://www.wsj.com/articles/we-sent-a-man-to-the-moon-we-can-send-the-dollar-to-cyberspace-11571179923 Digital dollars in stimulus bills — March: https://www.coindesk.com/house-stimulus-bills-envision-digital-dollar-to-ease-coronavirus-recession  April: https://www.coindesk.com/digital-dollar-reintroduced-by-us-lawmakers-in-latest-stimulus-bill Pew Research on smartphone adoption: https://www.pewresearch.org/internet/fact-sheet/mobile/ FDIC survey on the unbanked and underbanked: https://www.fdic.gov/householdsurvey/2017/2017execsumm.pdf Banks keeping some of customers’ stimulus money: https://www.nytimes.com/2020/04/16/business/stimulus-paychecks-garnish-banks.html Why a digital dollar is politically more feasible at this moment than before: https://www.coindesk.com/the-overton-window-opens-for-a-digital-dollar Ohio Senator Sherrod Brown also proposes digital dollar: https://www.coindesk.com/us-senate-floats-digital-dollar-bill-after-house-scrubs-term-from-coronavirus-relief-plan  Philadelphia Fed paper: https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2020/wp20-19.pdf Receptivity in Congress to the idea of a digital dollar: https://www.coindesk.com/how-a-flurry-of-digital-dollar-proposals-made-it-to-congress Libra white paper: https://libra.org/en-US/white-paper/#cover-letter Congressional hearing on using FedAccounts and for stimulus: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=406612 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. This is a fireside chat I had with Christopher Giancarlo titled Why the U.S. needs to have a digital dollar at an event hosted by NYU Stern. Chris is Senior Counsel to Wilkie Farr and Gallagher and former chairman of the Commodity Futures Trading Commission, and he is also affectionately known as Cryptodad. It was an engaging discussion about what is certainly going to be a bigger story over the next several years, the quest to create a digital dollar. Enjoy the show. In response to the challenging times, crypto.com is waiving the 3.5% credit card fee for all crypto purchases for the next three months. Download the crypto.com app today. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at Unchained.com. Stellar, Did you invest in a crypto project ICO that promised innovation but deliberate nothing? You might have recourse, but statutes of limitations are quickly approaching.

Kelmian, run by some of the first lawyers to enter crypto in 2013, is here to help. Go to www.common.law with 1L, not two, or email them at info at kelman.law. Chris, it's so nice to see you again. and I know we have limited time and a lot to discuss. So I'm actually going to, and this, I swear, I'm not trying to promote my own podcast. However, I did an interview with Chris back in the fall, which goes over a lot of his history. He was involved in many of the pivotal moments in the trajectory of Bitcoin and its rise in adoption by Wall Street, frankly, even, you know, in its classification. as a commodity, which that was, I think, you know, something that a lot of people in the industry

were concerned about. However, so despite all that history, we don't quite have time to go into all of it because there's just so much more to discuss right now. Chris has been working on something really big since leaving the CFDC, which is the Digital Dollar Project, which is a partnership between the Digital Dollar Foundation, which, Chris, you founded with your brother, Charles Giancarlo, and with David Gorman, who's the CEO of Gattaca Horizons, which is a fintech advisory firm. And Daniel also was the former chief innovation officer of the CFTC, and Accenture is also part of this partnership. So what are you proposing? We're proposing a full-blown U.S. Central Bank digital currency, a tokenized,

decentralized form of the U.S. dollar that would be a bare instrument, but in digital format that would be as valuable on your mobile device wallet and is in your leather wallet in your pocket. So how did you, I mean, after doing all these things like, you know, working on Bitcoin futures and Bitcoin and Ether, whether or not their commodities or securities, et cetera, how did you decide that this is what you wanted to work on next? Yeah. So I came away from five years serving government service with really sort of three observations. The first is that just as so much of our physical infrastructure, our bridges, our tunnels, our airports, our mass transportation systems

that were once state of the art in the 20th century have sadly been allowed to decay and decline and some cases become obsolete in the 21st century. The same is true, sadly, about a lot of our financial market infrastructure and even our financial regulatory structure. What was one state of the art has been allowed to age and decay. The second observation is that we're truly going into a new digital error. The first wave of the internet was an internet of information. This next wave is a wave of digitization, the internet of things of value. And we've experienced that at the CFTC very early on, even before we got to Bitcoin futures, with the movement of some of the world's major commodities

into blockchain-based distribution systems. And then, of course, recognizing Bitcoin as a commodity and ultimately overseeing the launch of Bitcoin futures and the bringing of institutional money. But we really saw this new wave of the Internet and its potential to render all things of value into a tokenized form, a digitized form, decentralized form, a distributed form in some cases, and in fact a programmable form.

And that brought me to the third observation that nowhere is this clash between these antiquated systems and this new wave of digitization more critical than actually our currency ourselves. And in the United States case, that's the digital dollar. If you stop and think about it, most of the world's things of value are priced in the dollar. in international markets, whether they be agricultural commodities like corn, wheat, soybeans, cotton, whether they be precious metals, whether they be industrial metals, whether they be energy products, whether they be the world's most important contracts and debt instruments are priced in dollars. As all those assets move into a tokenized, digitized form, how long can the dollar remain

the world's reserve currency if itself is not digital program? programmable, tokenized alongside of them. Others see that opportunity and are taking rapid steps to explore this new wave of the Internet as it applies to their sovereign currencies. And I believe the United States needs to do the same thing. So, you know, this proposal actually exists in a landscape of some other, well, other proposals, but also other existing digital assets that are, like a dollar or peg to the dollar. Some of those are, for instance, people might have heard

that in March and April, some of the versions of the stimulus bills that were proposed, originally did suggest dispersing funds via digital dollars. However, that was via something entailing the creation of Fed accounts, which they defined as, quote, an account maintained by a Federal Reserve Bank on behalf of any person that represents holdings in an electronic device or service that is used to store digital dollars that may be tied to a digital or physical identity. So that was actually not a blockchain-based form of a dollar. But then, obviously, in the blockchain world, we also have things like Tether, which is supposedly backed one-to-one by dollars.

It's a digital blockchain-based version of a dollar backed by actual dollars in banks. And then Dye is like a really different kind. decentralized version, which is backed by crypto assets. Again, they try to maintain that value on a dollar. So how does your proposal differ from these, or how is it similar to any of these? Okay. So I talked about that clash between old systems being challenged by this new wave of digitization. In the COVID crisis, we actually saw the limitations of the centuries-old accounts-based financial system. We saw that for large portions of our population, as much as 70 million people, that were not fully included in the banking system or did not have bank accounts registered

with the IRS, the only alternative in an accounts-based system to get the relief monies was through a traditional check issuing process, which raised all kinds of issues for people that didn't have access to bank services. So as any crisis does, it leads for a search for solutions, In fact, sometimes the best innovations come out of crisis time. Bitcoin itself, you may say, rose out of the last crisis. Some of the efforts to address this unfortunately confused the definition of digital dollar. The digital dollar was a term actually we coined in January for a full-blown U.S. Central Bank digital currency, a CBDC. But some of those efforts use the term to refer to something that's not a CBDC,

but is really an account-based distribution mechanism to reach underbanked populations by giving that population access to Fed accounts with the Federal Reserve to which monies can be sent on an account basis. They use the phrase digital dollar wallets, but it's not what we're talking about when we talk about digital dollars.

we're talking about full CBDC, those proposals, noteworthy of value because their objectives are the right thing is to address how do we get relief to underbank populations. But make no mistake, that's not a CBDC proposal. That is saying let's extend even further the traditional account-based system. You know, the account-based system goes back to Renaissance Venice as a way of holding monies while ships were coming in. It's an important system. It's served well, but it's based upon an analog experience that physical money is hard to transport and move around while you're waiting for ships to come in. So you might as well put it into a bank and recorded on an account ledger.

And we've expanded that, we've developed that, and we've electrified that, and to some degree, we've digitized that. But we've still kept the double entry bookkeeping account-based process. that's not a tokenized solution. And my feeling is, if we're going to address issues of underbank populations, let's help bring that population into the 21st century and not just hook them up to a 20th century solution. Let's take this opportunity to explore the new frontier of tokenized money. So the system that you propose is a two-tier distribution model that basically retains the current structure where we have the Federal Reserve Bank. Then we've also got these commercial banks that are kind of the regulated intermediaries between everyday consumers.

So, well, first of what we have, why don't you explain, you know, how the digital dollars would be issued through this and then also why you chose to stick with the existing system. So what I would say is the two tier plus approach. It's not limited to two tiers. It's two tiers plus. So how does physical money bearer instruments get into? the public's hands now. It's produced by the Federal Reserve. It's distributed through Federal Reserve banks and to commercial banks in return for reserves posted at the Federal Reserve. The money is made available to the public as a public good. It is seen by the government to be the basis for commerce, for activity. But as we've moved into a digital world, we find

its limitations. You can't use it in e-commerce. You can only use it in an analog setting. And nevertheless, that is the way the money is distributed. We're proposing to distribute tokenized versions of the dollar in the same format. That is, it would be minted by the Federal Reserve, digitally minted, recorded to a blockchain, distributed through the banking system, and the banks would be responsible for recording to the blockchain. But then that's why I say it's two plus. You could have third and fourth and other tiers. as the system builds, you can have wallet providers, be recipients and distributors of that digital money as well and could also record to the blockchain. There will be a minimum level of

regulatory function so that those endpoints are not only building to the blockchain, but providing AML KYC function, and it could be sort of a banking light extension. But we'll have to develop that, and that's one of the reasons why we're not calling for this to be drafted in a weekend legislative drafting session, but to be built over a series of pilot programs over years as we explore the dimensions of this. And why not do something more radical that disintermediates the commercial banks? I did see that idea was floated in a recent paper that came out this month by the Federal Reserve of Philadelphia, and in it the authors said that the Fed could be, quote, central bank, open to all. And as you probably saw in the news, with the recent stimulus checks,

there were some banks who also did not release the full funds of those checks to customers who had overdrawn their accounts. And as I'm sure we all know, also, commercial banks oftentimes don't have incentives to bank certain populations. So why would you want to continue relying on them as intermediaries? So I'm a realist, Laura. You know, I've served a the private sector 30 years, five years in government. I'm old enough to have witnessed the space program and seen how the internet evolved. And I think when we do big things in the United States, it's generally a partnership between the private sector and the public sector where both sides come to the table feeling they've got a stake in the outcome. And where the degree of

disintermediation, it's unquestionable, but it's done in a progressive iterative fashion, not done overnight. And so I think that the way we've proposed is a way that's probably most readily pursued. But then I think over time, there is opportunity for a healthy amount of creative destruction and healthy disintermediation as old forms are replaced with new forms. But I don't think a proposal that in its white paper forms says, let's disintermediate the existing incumbents in the financial system is going to be one that's going to be readily accepted anytime soon.

Yeah, I think that would get a huge lobbying force by an industry that already has a lot of money. So anyway, and one of the- There's an old joke that God created the world in six days, but then again, he didn't have an installed base to deal with. Right. And one other thing I wanted to ask about was in your white paper about your proposal, you did say that a CBDC could be made programmable. And, you know, I was just thinking about how, for a lot of consumers,

to them, their money already seems digital, you know, through credit cards and PayPal and Genmo. So what differences or what new features do you think they would notice with a digital dollar? So an account space system is built upon messages telling, financial institutions to update records of who holds what money. And what's digital is the messages that go back and forth instructing the institutions to change and update records. In a tokenized version of currency, the decentralized nature of a blockchain is what confirms identity. You don't have a double spend problem and you don't need all those messages because the consensus establishes ownership immediately without all of that message activity. So you go from basically a double

entry system to a unit entry system by consensus. It's really architecturally a radically different change. And when I talk about how society needs to update its architecture of its bridges and tunnels and its airports, similarly, every so often, society needs to update the architecture of its most fundamental value, and that's its currency. And that's what we're talking about, moving to a new technological architecture underpinning the U.S. dollar. Right, but I don't think people would notice that, right? Probably wouldn't.

Their experience wouldn't. Okay. When you go into a vendor where you can use Apple Pay, right? What you're doing is there's a wireless message sent to record that account on a ledger. with a digital dollar, there would be a wireless transfer of money, not a message to an account, to some validator, but actually a transfer of the money. It would be like going from a fax machine produces a digitally generated image, but it's a fax machine. It's not the same thing as, see an MP3 file, which actually holds the thing itself.

And that's what we're talking about, is going to, it's going from a digital recording of something that represents the value to a digital, to the value itself in digital format. Yeah, and I think within that you could program things like interest-bearing capabilities or even maybe controlling anonymity. I saw that in the white paper. We will discuss that more because I already see there's a question on this topic and I have a number of questions. But actually, before we get to that, I just also wanted to ask.

So you and I had discussed in like a pre-interview before this event about access and inclusion. And at the time that we spoke, I think I asked you, oh, you know, are there more people who have smartphones than have bank accounts because in order for this to increase access, you would have to have a smartphone to access this. But then I actually looked at the figures, and I think you said to me, oh, more Americans have smartphones than are unbanked. But actually, it's not true.

So 81% of Americans have smartphones, but only 6% of Americans are unbanked. So it actually seems to be the reverse that the number of people without smartphones is actually greater than the percentage who are unbanked. So, you know, how could this increase access when, you know, the basic requirement is a smartphone? Right. So you've got to drill down to these numbers even further and look at demographics and look at age categories. You've kind of got an interesting dichotomy here. At younger levels of the population, the availability of smartphones is actually pretty, pretty, very, very strong.

and yet they are on or underbanked to a considerable extent. And many of them will enter the banking system. It's just that they can get by with Venmo at this point, or they may have a bank account, but they don't have a mortgage or an auto loan, so they'd be considered underbanked, but still banked. And yet, if you go to the other end of the age scale, in seniors, a lot of them are extremely well banked,

and yet they're still using flip phones. and so they're not using smartphones. It's very hard to get to the last elements, the very last percentage points of the population because there are other issues involved in being unbanked. Some of it has to do with identity. Many members of our society are unbanked because they don't want to reveal identity for whatever reason.

They may be undocumented. They may have other issues. There's also a segment of society that is uncomfortable with banking generally, And so just opening up banking to them, it doesn't necessarily mean that they're going to engage in the banking system. And then there are, of course, minority populations, there are populations that don't have access to broadband because they're in rural areas. So there's a lot of different teasing out to this to do. We don't say that a digital dollar is a panacea for the unbanked population.

What we do say is that digital fiat may provide a much easier entry ramp into financial inclusion for a population that has, for whatever reason, been outside the banking circle. They may be very comfortable with Venmo because it's easily understandable. A digital dollar would be as easily accessible, if not more so than Venmo, but without the information leakage that comes with Venmo. All right. Yeah, why don't we actually just jump into security or to privacy right now? Because I feel like we're already just talking about this. You know, I think a lot of people would immediately be wondering how private their transactions could be with the digital dollar. So how would you account for that? Okay. So privacy is a very, very important value. And yet nowhere in the U.S. financial system, is it absolute? You know, we, we, we, we tend to think about cash as anonymous, but even their policy choices have been made.

So cash over $10,000 uses requires reporting, requires, it receives AML KYC monitoring. So even cash is not an absolutely private feature. So now let's, if we, if we accept the point that I'm trying to make, that, privacy has a relative relationship vis-a-vis issues of law enforcement, which is why AML KYC is done. We then have to ask, where will society find the balancing point between privacy rights and national security or law enforcement rights? And in that regard, I think if the United States does it right and designs a digital

dollar right, you could have superior, if not absolute, privacy rights compared to central bank digital currencies or commercial cryptocurrencies offered by others. And let me just, let's imagine a world where you have a digital R&B, you have a digital euro, you have a Libra coin, and you have a digital dollar. Well, the social expectations in China, the social. social expectations in Europe and the social expectations in the United States about privacy are actually quite different. In China, there's a higher expectation of state security. In Europe, Europe is very sensitive to commercial exploitation of data. They have a law called the GDPR, which protects people's right to privacy against commercial exploitation of data, but actually does not give

them rights against government exploitation of data. In the United States, we're the opposite. We're actually relatively relaxed about commercial exploitation of our data, but we're very sensitive, going back to the founding of the Republic and the Fourth Amendment, about government exploitation of privacy rights. And therefore, if our cultural expectations are built into our sovereign currencies, then you can imagine a world where use of, say, a digital R&B has a very low expectation of privacy vis-a-vis the government, where a European sovereign currency would have a better, but still not compared to the U.S. right of privacy against the government, and where the U.S. sovereign currency could have the highest right of expectation against government

observation and would have no risk of commercial exploitation based upon what your commercial development is with your commercial vendors, but, prepared to say a Libre coin where there is an expectation that the data will be exploited for commercial purposes. So these are all design choices that will need to be built into our sovereign digital currency, which is one of the reasons why I'm so insistent that the United States starts experimenting now. So we make sure that these social values are built into the development from the beginning. I'm a big believer that the government should have very little ability to monitor transactions except for us as appropriate for national security and law enforcement.

We've got to get that development right. But remember, it's going to be done on a relative basis versus other sovereign and other commercial currencies that develop in a new digital way. Kelman Law is run by true crypto-OGs and based in New York and Taiwan. They were all already operating since way back in 2013. And of course, they accept crypto as payment. The founding partners are known for having drafted bills and crypto regulations submitted to U.S. Congress, as well as working in the Mount Gauk's civil rehabilitation case. If you participated in a token offering and have not been able to get back your funds, then you should contact Kelman. Kelman Law is staffed with lawyers with expertise in ICO litigation, dispute resolution,

anti-money laundering, and U.S. and international corporate structuring for crypto business. So if you have a dispute with an ICO project or just needs solid legal advice related to crypto, send a message to info at kelman.law. That's k-el-m-a-n-law. Kelman with 1-L, not two. Or just go to their website at www.common.compan.com. When you think crypto, think Kelman. The Stellar Network connects people to global currencies and assets. Stellar lets you make near-insest, constant payments in any currency with anyone, anywhere. It's an open blockchain network that access payment rails for applications and institutions around the world and designed so that existing financial systems can work together on a single platform. Transactions powered by Stellar are

low-cost, transparent, and fast, saving both businesses and end users the time and money associated with traditional payment networks. With Stellar, your business can issue digital dollars or exchange existing fia currencies without the need for complicated smart contracts or new programming languages. Its robust documentation, toolkits, and multilanguage support let you quickly integrate Stellar into your existing products and services. Learn more about Stellar and start billing today at unchained.stellar.org. In response to the challenging times, Crypto.com is introducing three measures to help the community. First, the 3.5% credit card fee for all crypto purchases will be waived for the next three months. Second, you could get up to 10% back

by using the MCO Visa card on food delivery and grocery shopping at merchants like Uber Eats, McDonald's, Domino's Pizza, Walmart, and more. Don't have a card yet? Buy gift cards on the Crypto.com app from merchants like Whole Foods, Safeway, Burger King, Chipotle, Papa John's, Domino's, and more, and get 20% back on food and 10% back on groceries. This is a global, offer, so check out which merchants are available in your country. Download the crypto.com app today. Well, so what you're describing then, it seems like the digital dollar would have kind of built in, I mean, you referenced this before, but I just want to know what it looks like to have kind of built in, or I guess you were saying that it could even be some of the commercial entities that help

distribute the digital dollar. But, you know, in terms of the KYC, the know your customer, anti-money laundering, anti-terrorist financing, anti-fraud, all those things. What would that look like when I want to use it? Do I have to give my full identity? And then frankly, well, let's not get to that. We'll talk about that in a second, but just answer that. So we would see that at the point of the wallet. So as you would open up a wallet account, there would be a degree of disclosure of information

to establish that account, and then they would perform the KYC, or we could even envision that that would be done on a white label survey. by a well-established banking institution on behalf of a wallet provider. Okay. Okay. And at what level of identity would people need to give? Because, you know, as you were saying for like an undocumented person, like how would they establish their identity?

Look, identity is a difficult set of choices. We've been grappling with that in the United States for a long, long time. And again, one of the reasons why we advocate a series of, of pilot programs is to find out where the balance is. We need to make this accessible. And so the identity necessary to use a digital dollar has got to be fairly basic. But at the same time, we've got to balance AML KYC requirements in. You know, we've made a policy choice with regard to currency itself. We will need to make policy choices with regard to digital currency itself. And I can't tell you offhand where that is. We're only at this a few months,

Laura, and there's a lot to be thought about here. Yeah, and I do think that you're right, that in the U.S., people are perhaps more concerned about government overreach in this situation because I was reading some of the articles that have been written on this, and already I see people saying things like, oh, you know, I could see this leading the Fed to, you know, or the government to do asset seizure without warrants. And so it's interesting because you're right. In Europe, it does seem to be more they have that concern about commercial overreach. But a currency has got to reflect the values of its society.

And if the government designs something that doesn't reflect the values of a society, it won't fly and it won't work. If you look at the course of human history, currencies and international commerce have always competed against each other to the patronage of people in commerce. You get the details wrong, they will go to another currency. We have to get this right. We've got to design this with the right policy choices that reflect the values of American society in this, if it's going to be adopted, we're going to see broad implementation.

Even in physical fiat, we've seen where coins are misdesigned, they don't get used. Designing this right is critically important to attract a user base. Okay, so there's so much to discuss in terms of the global space space, but just one last question about what you're proposing here, which is that obviously we know the history of blockchain technology and digital assets is littered with hacks, thefts, fishing, sim swaps, just it's so easy to lose this form of money. Or for these systems to be hacked.

And with what you're proposing, where it's essentially kind of, of, I mean, tell me if I'm incorrect, but it sounds like a private blockchain where there's a limited set of notes and the actors are somewhat either known or at least, you know, kind of maybe predictable. So the security of something like that seems like it would be easier to compromise than the security of something like Bitcoin or Ethereum where, you know, there's just thousands of notes all over the world. So how would you make something like this secure? Well, look, if the standard for a financial system is it can't be hacked, then we might as well shut down the existing account space system now because it's hacked all the time, right?

It can't, that can't be the standard, otherwise we'll never move forward, right? We have to recognize, and the breakthrough of this technology is its consensus structure. It's its ability on a consensus basis, distributed basis, to get beyond the, the single point of failure verification process that we have in place now. But you're right, it probably will be the most hacked structure on Earth. And that's, again, why this cannot be cobbled together in a weekend congressional drafting session and launched three weeks later. This is something, you know, the analogy is the decision to put a person on the moon that was taken in the 1950s.

And it didn't take place to the end of the 60s. And in between the decision to go and the successful landing was a whole series of pilot programs called Mercury and Gemini and Apollo and each one of them had a dozen or more missions and each one learned from the other. And they learned from the failures as much as they learned from the successes. And that's why we advocate a series of pilot programs. We're going to have to explore our way through this. But the standard can't be unhackable because it will be.

And that's what we've got to learn. But the beauty of what Satoshi Okamoto came up with is the notion of a consensus, a distributed approach that if it's done right, is virtually impossible to hack. So thank you for mentioning the race to get on the moon, because that is also, in a way, what we're facing right now with these central bank digital currencies. And of course, China already has a pilot, or actually it's, three, I think, geographies of its digital yuan and payment system, which is called DCEP. So do you feel like the U.S. is already falling behind when it comes to a CBDC?

Well, look, I have a great deal respect for what China's doing. This is an enormous project, and they are, and they are determined. They are marshaly enormous amount of resource, an enormous amount of brain power, and it's impressive to behold. But China comes at this from a different place in the global economic system. Their currency is not a reserve currency. It doesn't have the role today that the dollar has today in the global economic system. They've probably got more to gain than they have to lose

by doing this experiment, and if they get it wrong, it's not going to have the same impact that it would for the U.S. if we get this wrong and if we rush into this. I'm of the view that winning and losing is not a question of who goes first. winning and losing is a question of which society successfully brings their values to bear on the design of digital currency. If our values are the right balance of privacy rights against state surveillance, if our values are the right role for a public and the private to work together,

if our values are that the money should be a public good on which a free market economy is built, if we can agree those values and if we can agree and the rule of law, if we can agree those values and if we can design those values into the next form of the dollar, then I think we'll have achieved our purpose. And it won't be a question of winning a race or, you know, landing a rocket a lunar module. It's a question of values and a question of making sure that the values that that we expect in our currency are built into the next form of that currency, a digital form of that currency. So I agree with you that just the fact that their first out of the gate doesn't necessarily mean that they'll succeed or become the dominant CBDC. However, you know, the phrase

first mover advantage exists for a reason. And I do think that with money, that kind of thing applies because money tends to have network effects. And in China's case, they have this very comprehensive vision for blockchain technology, not just apply to money, but apply to all different kinds of things. And they're going to be using it in a lot of developing countries that they deal with, especially around their Belt and Road initiative. So when you kind of put all that together, you know, and you play this out, what impact do you think this could have on the global balance of power,

especially if the U.S. continues to lag. Yeah, well, again, I tip my hat to what China's doing. It's impressive. And exactly as you say, when you combine what they're doing with currency with their Belt and Road initiative, with the billions of dollars, they're putting into large engineering projects and large public infrastructure projects

in what is becoming a zone of influence. it's an impressive combination. I think, again, I think the United States is in a different place. I don't see the United States. Again, for better, for worse, I'm not making a value judgment, but I don't think where the United States is right now is in doing large government-sponsored investments in large infrastructure projects in the developing world.

Again, for better, for worse, for right or wrong, I don't see that happening. So I don't, if the U.S. were to compete, it would have to compete in more just a currency, but also in its own Belt Road initiative and everything that goes with it, I just don't see that happening. Again, I think the United States uses soft power around the world.

And again, you know, many, there's many viewpoints on that, and I really don't want to get into debating U.S. foreign policy. I think there's both things to praise and things to criticize in that. I do believe, though, that at heart, The last three generations of dollar dominance in the world has seen more rising living standards and more of the human population move out of poverty into the middle class with better health

outcomes, with longer lives, and with aspirations to better education and more human rights than at any other point in human history. And I think there has been, to some degree, a consequence of the values that have been built into the dollar and its role in the world. And so I, for one, would like to make sure that those same values are built into the next version of the dollar. I think the United States will ultimately have no choice but to create a CVDC. I think the time to get started on that is not later in time, but now take our time, get it right, build those values in to serve into the future. And with that, that's about my deepest foray into foreign policy. It's an area where I know more about markets

that I do know about foreign policy, so I don't want to pronounce too far on that. Well, so we've been discussing the threat from China, but then on the other hand, we have this Libra coin that's going to be coming out, and they'll be issuing different stable coins that are pegged to the values of various fiat currencies, including the U.S. dollar, that will be called the Libra USDA. So do you think that the threat then could come in that direction? Because Facebook has a user base even larger than the population of the population of the world. China and it already has a very easy way to open digital wallets for lots of people in not just

the U.S., but across the globe. So, you know, do you think that Libra USDA could end up being the proxy for this digital dollar and sort of beat a future CBDC? In dollar terms, probably the only bigger user base than that is the dollar itself. Look, I think Libra has done us all a service. by what they've done. I think they have demonstrated reminded us of what money is. Again, it's only the last few generations where sovereign currencies, in fact, the U.S. dollar

has been so ubiquitous as it has. If you look at the course of human history, more often than not, you've seen many different sovereign currencies competing, but also competing with commercial currencies. During the period of the European exploration of the East Coast, of North America in the 16th and 17th centuries, it was a series of currencies that were competing, whether they'd be Dutch guilders or French francs, but the currency that was most preferred was the dollar. But it wasn't the American dollar. It was the Spanish dollar. And the reason

why the Spanish dollar was the preferred coin was because it actually had technological advantages over the others. It was minted using New World Silver, which was purer than the other silver in use, and therefore was lighter when it was carried in a trunk for transportation, but it was also more consistently pure, which meant that the coinage itself was more consistent. But the most interesting aspect was it was minted in a special way that it can be broken into eight equal-sized pieces, and therefore it can be fractionalized. And when we think about technological advantages to a currency, we need to remember that we're competing for the patronage of that currency. And having technological modernization is part of maintaining the importance and the patronage for

that currency. And that's exactly the way I think we need to think about the dollar today. How do we modernize it for use in a new digital error? Yeah, I actually just realized earlier when you said the user base for USDA is bigger than the user base at Facebook. I actually did realize so that I think, you know, what maybe is concerning is the fact that Facebook is a platform. And, you know, I've seen this working in media for more than 20 years that the platforms can really pull the rug out from existing players. I actually don't want to go too far down this whole because we're limited on time and we need to get into COVID and all kinds of stuff.

So let's just talk about COVID now. How do you think COVID will play into all this? Do you think that it will hasten the competition among countries to establish CBDCs, or do you expect it to generally hasten along development? So it certainly showed the shortcomings in the accounts-based system when you have a large underbanked population. And I think that there's nothing like a crisis for a spur to action. But I view the need to create a U.S. CBDC as more than just a crisis response. but it's really a response to changing technological innovation.

You know, the first wave of the Internet changed all our lives, and that was just the first wave. That was an Internet of information. This next one is going to change all our lives as well. And, you know, the dollar's role could be undermined if it doesn't evolve with it. So I think the COVID crisis is a good spur to action, and I'm actually testifying tomorrow at a hearing of the House Financial Services Committee that's to look at the use of digital technology as a financial response.

And I'll be talking about my proposal for a U.S. CBDC. But that hearing perhaps might not have taken place, but for the COVID crisis. So it provides an opportunity to talk about the shortcomings in the system as crisis response, but it also talks about how infrastructure sometimes just needs to be modernized because it needs to be modernized, because infrastructure is a public good for economic activity and the social benefits that economic

activity brings to all of our livelihoods. And do you think that this does provide a good opportunity to start one of your pilots? I have seen some other, you know, blockchain people make calls for that. What do you think of that? Absolutely. Absolutely. I think now is the time. And we can start with financial inclusion. We can start with looking at how readily some of the underbanked populations could

you see digital wallets as a on-ramp into financial inclusion. You know, there's a lot of discrete populations that I think could benefit from this immediately. One area would be service men and women. If you've ever visited an army base, you'll see surrounding it a whole series of check cashing centers. And when they check their cash, they may be overseas, they may be far from home. They then need to get the money home, so they actually may go then to a cash transmission bureau. And each step along the way they're paying something. Why couldn't they just send that money home in a text message? And that's what a CBDC would allow for.

And can you give us a preview of what you plan to say in tomorrow's testimony? Well, it's along the lines of what we're talking about today. You know, people that have followed me, I tend to, I'm not a technologist by background, although I've always been fascinated by how technology can improve our ways of life. And I tend to talk in general terms about why I think this is the time to get serious about exploring the next iteration of the dollar. We know people abroad are doing it. We know our economic competitors are doing it. We know that our economic allies are doing it.

We know that commercial entities are doing it. We know the dollar plays a critical role in the world's economy. And yet how can we not say we also need to explore its digital potential? And do you have any insight into how? those a couple of stimulus bills did have the suggestions for a digital dollar. It looks like some of the Congress people who suggested were Rashida Talib of Michigan, Pram-Primilla Jayapal of Washington, and Ohio Senator Sherrod Brown. I don't know. Have you been in touch with any of them? Or can you give us a sense in general of how well-versed lawmakers are in these proposals for a digital

dollar? What I can say is having served 30 years in the private sector and five years in the federal government, people in the public sector are not actually terribly different than people in the private sector. You have early adopters, you've got late adopters, and you've got the broad bell curve in the middle of middle adopters. There are people in the official sector at some regulatory agencies, at cabinet agencies, and on Capitol Hill that are really very switched on, understand the potential of the technology. And working right alongside them,

you've got people that are, I don't even know if they're beyond flip phones, but their appetite for technological innovation is not keen. And then you've got the broad middle. That's why we form the digital dollar project primarily as a think tank. Our goal is to, if we go back to the analogy of the space race, we're still in 1958 trying to get the word out that the space is the next frontier. And if we can build that consensus, then we can decide whether the lunar module uses aluminum foil or whether it's powered by what mixture of fuel and all of those details that we'll need to work out.

But first, we've got to create a national consensus that we need to move beyond what we're doing now. And that's what I'm hoping to do tomorrow, Laura, is get the word out. And how do you think the election, well, not only for president, but also in both houses of Congress, how do you think that will affect the chances for a digital dollar to be adopted? Like, are you finding that this is a partisan issue or a bipartisan? In my experience in Washington, I never found technological aptitude to be Republican or Democrat. I just don't see it. I think there's people on both sides of that political divide.

who are pro-innovation. There are people on both sides that political divide who are anti-innovation, and then there's a broad middle. At the end of the day, you put those political labels aside. They're people like you and me.

And so when you look at your kind of maybe future ideal roadmap for getting this adopted, who are all the entities that you feel you would need to get on board? And what would some of those pilot programs that you talked about look like? Well, so when,

when China does big things, as they're doing with the digital R&B or as they've done with the Blue Water Navy, it's directed from the very top. And then an order goes out to 43 million Communist Party members to read the same book. And on Monday, go to work and instruct everybody to proceed in the same manner. I'm not faulting that. That's a great system for big projects. That's not how we roll in the United States. It never has been, right? When we do big things, it's a messy process of trying to build a consensus of showing leadership. And then when we do launch, it's a, I think, a beautiful blend of public and private. That's what built the space program.

That's what built the Internet. The public sector lays down broad core principles, policies, but it's the private sector that does the engineering, that brings the finance, that brings the technical talent, that does the project management that the private sector can do. and having been in the government that it's very hard for the public sector to do, something as big as this needs to be a traditionally American public-private partnership. And so I'm hoping that those pilot programs call for the best and the brightest from the private sector. Some companies, like, I don't want to seem like I'm endorsing anybody,

but there's so much good work being done right now. I've met with many of the companies in the space and the blockchain space are building things. I would like to see, let's try, you know, Ethereum in one area. Let's try Cora in another. Let's try digital asset in a third. Let's work with Paxos and others. Let's have a beautiful explosion of innovation. And ultimately, even if we're, if we go back to the analogy of a race, which I don't like to use,

even if we're starting late, with that explosion of talent, with that explosion of creativity, I think we could create a dollar that would be the killer app in terms of sovereign digital currency. Okay, so you don't want to describe any kind of particular pilot that you already have in mind? I think that military service compensation salaries, a good one. I think veterans benefits may be another one. I think rural area distribution

that have difficulty accessing banks, think inner city areas with some populations, we're going to have to explore a lot of things. We're going to have to explore digital identity, which is a subject that's been very controversial in the United States. Do we have a central identity system? Do we use other means of authentication? So there's going to be a lot of work to get done there. This is not something that's going to be done overnight. It's not something that's going to be done in a few years. This is something that's a multi-year exercise. The more pilot programs we can get going, both in sequence, but also perhaps simultaneously, the faster we can learn,

and therefore the perhaps the better our design building can be to get something that we can ultimately launch in a universal fashion. Okay, so we have two questions from listeners. I just want to get to. One is, do you see a currency exchange rate between the U.S. dollar and a digital U.S. dollar? No. It would be critically important that there be no arbitrage,

that it be, if it's got the full faith and credit in physical form, it has full faith and credit in digital form, there should be no arbitrage. And then the last one, which this is a great question. I should have asked this before. So for somebody who doesn't have access to a smartphone, how can they get a hold of a US digital dollar? So that's something we're going to have to explore. I mean, it may be that we have a program of smartphones for some sectors of the population to make sure they're financially included. You know, a low-cost smartphone is probably $10 a month. That may be actually a bargain compared to the notion of the Federal Reserve

going into the retail banking business for which they are not set up at all now and would have to restructure probably the entire Federal Reserve. So we may be better off creating a system of government-sponsored smartphones for sections of the population that might not otherwise have access to it and something that's certainly worth exploring. Great.

Okay, well, where can people learn more about you and the Digital Dollar Project? Thank you for asking. At digital dollarproject.org. We've got everything on the website. My testimony will be posted there. Our recent White Paper is there. We've got a great advisory board

of 30 experts in a range of fields from privacy to AML KYC to banking. Their names are all there. And we have an opportunity, you have an opportunity to write to us there. If you have thoughts and ideas, we'd like to hear from you. Perfect.

Well, thank you so much for this interview. And thank you to NYU Stern, Dean Naomi Diamant, Renee Leibler, and Janet Vitebski for organizing. Thanks so much for joining us today. To learn more about Chris, check out the show notes inside your podcast player. Don't forget, you can now watch video recordings

of the podcast on the Unchained YouTube channel. Go to YouTube.com slash C slash Unchained Podcast and subscribe today. Unchained is produced by me, Laura Shin, with help from Fractual recording, Anthony Youne, Daniel Ness, Josh Durham, and the team at CLK transcription. Thanks for listening.