Digital Dollar Foundation: Why the former CFTC head is pushing for digital USD
Creation hasn't even started, but the digital dollar is already years in the making.
Giancarlo isn't waiting for the Fed though. In partnership with Accenture, he's founded the Digital Dollar Foundation, whose ultimate goal is to see the creation of a purely digital US dollar.
"By digital dollar, I don't mean a stablecoin," he said on stage at the LATOKEN Blockchain Economic Forum Davos 2020. "I don't mean something that's a derivative of the dollar. I mean something that enjoys the full faith of the US government – something that is legal tender."
"A dollar right now, in most world currencies, comes in two forms: It comes in coin form... and it comes in paper form," he explained. "What we're proposing is a third form, a digital form, that would be minted by the central bank – by the Federal Reserve – and it would be made available to users through the traditional banking system.
"It would enjoy the same conceptual principles as fiat, but would have the convenience of digital usage."
The purpose of the Foundation is to start marshalling minds and money around designing the perfect digital dollar now, so when the Fed eventually decides to create a central bank digital currency, it can create a better currency faster.
And the assumption behind it is that the need for a digital dollar will soon become apparent, and that its creation is therefore inevitable.
"You can look at any walk of life where digitisation has supplanted an analog role. One just doesn't want to go back to analog tools in a digital era. What I think is going to become increasingly apparent this decade is how insufficient an analog currency will be in a growing digital world," Giancarlo said. "Our purpose is to do as much thinking as we can about what this looks like, because I think it will become apparent, the need for a digital dollar. I think the US government will want to pick up on that."
An outdated financial system
Giancarlo said he grew this line of thinking over time at the CFTC, and it is based on a growing sense that money remained stuck in the 20th century, even as the rest of the world proceeded to the 21st century.
"The first wave of digitisation, of the Internet and life itself really, took place around the digitisation of information," he mused. "And when you're talking about information, you're talking about something that in most Western economies is a regulatory light zone. Therefore, I believe that wave of innovation didn't really face a lot of strong resistance.
"But the digitisation of value, when you're talking about money, it's running right smack into government institutions that have been built up over decades, if not centuries... I think this wave of innovation requires a different mindset than the wave that came before."
"Think about how regulators regulate an ecosystem," Giancarlo said. "Regulators look at an ecosystem and they say 'who are the intermediaries?' We find the intermediaries, we identify them and then we register them. We give them jobs to do to oversee these markets. And yet what does so much of the innovation do? It seeks to disintermediate.
"We've got really a clash of cultures here between this wave of innovation and the regulation of value.
"As I left the agency I reflected on how so much of our financial system is 20th century based, and yet so much of the innovations that come down are digital 21st century. We need to update our financial system. Nowhere is that clash between 21st century digital technology and 20th century analog financial systems more apparent than in our own US central bank currency, the dollar. I believe that the users of the dollar, whether they be US domestic retail users or the global economy itself, are under-served by an analog currency in a digital world."
A strong dollar
Another reason Giancarlo is pushing for a digital dollar is simply because he believes in it, Giancarlo said. He thinks the world benefits from having the US dollar as the global reserve currency and doesn't want to see it left behind as the rest of the world goes digital.
"I'm a big believer in a strong dollar as a reserve currency," he said. "I think there's a correlation between the dollar's role as a global currency and the globalisation of markets over the last 30 years.
"While there are absolutely, undoubtedly legitimate concerns and criticisms, whether it be use of the dollar for sanctions policy or other areas…. It is my view that a dollar roughly serves many purposes, wherever one is from. Just take the pricing of commodities. It works well to have one pricing mechanism for the world's major commodities, and if they're priced in different currencies you're back down to currency risk.
"If [the US dollar] remains an analog currency, the challenges of using it in a digital world are very complex."
While the Foundation is solely focused on the dollar, Giancarlo envisions a healthy field of competing currencies in the future.
"I believe in markets and I believe global markets are always stronger when there's a lot of difference, when there's a lot of competing issues. I see a future market, perhaps with a digital yuan, digital euro and digital dollar, and plenty of privately-authored issues. Maybe a Libra coin, Bitcoin and others, finding their place in a rich marketplace of opportunity. That's all for the good. But this project is solely focused on the dollar."
This competitive currency scene could also present an opportunity for the US dollar to stand out on its own merits, Giancarlo suggested.
For example, a digital dollar could guarantee users the protections of constitutional rights to freedom and privacy.
"Compare that against other central bank moneys which may very much be set up to monitor how your money is being used," he said. "Or commercial ventures that may very much want to know where you’re shopping so they can send you pop-up ads to go shop somewhere else.
"I can see, in a world of competing currencies, where those restrictions on the US federal government's ability to access information could become real compelling reasons why the dollar would remain a key reserve currency on the world stage.
"The jurisprudence exists there in the United States constitution, and one of the things we're going to be exploring in the Digital Dollar Project is how we build a foundation on that to provide that protection to the digital dollar."
While different CBDCs utilise blockchain to greater and lesser extents, the Digital Dollar Foundation expects it to be an important part of the future dollar. As a universal currency, the dollar will have an ecosystem where users can benefit from trust and transparency.
"One of the major advantages to ecosystems based on shared data infrastructure – shared business logic – in the form of smart contract layers and the construct is, now you suddenly have the ability, when there is a new regulation, to absorb code and test that regulation once on behalf of the ecosystem in a massively more efficient manner," said Accenture's David Treat. "It creates a bit of a concentration risk, but I think there's more upside to being able to do sufficient coding and testing of shared infrastructure.
"Obviously the SEC has been... thirsting for this degree of transparency, visibility and audibility."
It also allows for additional disintermediation, Treat said.
"The ability now, through self-managed identity and identity constructs, to have a different relationship between the bank and the individual – to read directly from the wallet in a very trusted relationship – is a major focus of ours for putting efforts into digital currency," he said. "We use the direct access and the implicit capabilities that blockchain has yet to provide to... just make it work better."
"At the end of the day, as we've built and prototyped with central banks, the core infrastructure – the tech – isn't really the challenge," he added. "There are things to work out and things to still build, but it really is more around the governance and policy and ecosystem dynamics, and the choices we'll have, because the tech unlocks options we haven't had before. We'll have to make social and economic choices about how we implement those options with programmable money."
Giancarlo also describes himself as a blockchain believer, based on his view that blockchain could have averted the global financial crisis.
"It was a crisis of understanding. We could have had clarity of understanding, and then the policy responses could have been much more precise," he said. "And so I became a believer in blockchain immediately."
Of course, the financial crisis also gave birth to Bitcoin, whose core ethos at the time was to oppose the evils of fiat currency.
It would be kind of funny if the digital US dollar ends up sharing a similar origin story to Bitcoin.
Disclosure: The author holds BNB and BTC at the time of writing.