Interview with Former CFTC Chairman: A Battle for the Future of American Currency
Interview with Former CFTC Chairman: Future of American Currency at Stake
Source | Forkast
Compiled by | hiiro, SevenUpDAO
According to Giancarlo, co-founder of the Digital Dollar Foundation, central bank digital currencies (CBDCs) are the future of money and countries that resist innovation risk losing influence in the global financial arena. The foundation is a non-profit organization dedicated to researching and openly discussing the advantages and challenges of CBDCs.
Speaking to Forkast Editor-in-Chief Angie Lau, Giancarlo expressed disappointment with Washington’s hostility towards cryptocurrencies. His comments were in response to recent enforcement actions taken by the United States Securities and Exchange Commission against cryptocurrencies.
Highlights of this article
“Deer in headlights”: We’re a little bit like deer in the headlights now in officialdom in the United States, with these new technologies that are transformative and challenging. And if you look at the potential revolution in payments, that is a threat to central bankers who have traditionally dominated and monopolized payments.
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Resistance to digitization in the United States: I am disappointed — not confused, I understand that. I am disappointed with the hostility. Because if we don’t view it as a threat to the existing American system of dominance, but rather as an opportunity to reset our financial system and make it more democratic, open, financially inclusive, and consistent with our constitutional principles of privacy rights, to rethink opportunities beyond the financial surveillance that has been conducted within the existing system, it’s a tremendous opportunity. I hope the United States does not resist it, but rather embraces it more openly.
FTX is a Washington scandal: By the way, the FTX scandal is a Washington scandal. I’ve been recently in São Paolo, Brazil, I’ve been in Europe, I’ve been in Japan and talked to financial regulators there. They are not overly focused on FTX. They are focused on the opportunities that this technology brings and how to further advance it for their own economic benefit. We need to get beyond it. But it’s Washington, after all. It will cause controversy for a while.
Currency version of Amazon: We will have the currency version of Amazon, and the temptation for politicians to control, surveil and potentially censor it will be just as great. Privacy issues exist whether it’s done by the central bank or by stablecoin operators. Whoever does it, whether by central government or by private actors.
Interview Transcript
Angie Lau: Cryptocurrencies are the future of finance, and they are becoming increasingly important over time. However, with the struggles of the US government over how to regulate and possibly embrace this new era of finance, there are many topics being discussed. From the Securities and Exchange Commission’s enforcement actions (now more anti-crypto than embracing) to the exploration of digital dollars. We will gain insights from industry-leading experts.
Welcome to Word on the Block, a series that delves deep into blockchain and the emerging technologies shaping our intersection of business, politics, and the economy. This is what we report on at Forkast.News. I’m Angie Lau, Forkast’s Editor-in-Chief.
Today, I sit down with a Washington insider who is now a true maverick, someone who is unafraid to challenge the status quo and make waves in finance. He has been called the “Crypto Dad” for his forward-thinking approach to cryptocurrency regulation, having served as the chairman of the US Commodity Futures Trading Commission (CFTC) and now forging new paths in the digital currency space. Ladies and gentlemen, I am thrilled, as I said, to welcome Chris Giancarlo to Word on the Block.
Chris, it’s great to have you here today. Are you ready to go?
Giancarlo: I’m ready to go. It’s great to be with you again. This is not the first time we’ve done something like this, so it’s great to be together again.
Lau: Indeed. We had a discussion earlier for Forkast because we saw this industry emerging. You were working at the CFTC at the time and, as I said, were a pioneer. Your book, CryptoDad: The Fight for the Future of Money, is a must-read. I love the title. It’s very apt, isn’t it? It’s a fight. It really is a fight.
Giancarlo: It really is a fight. We talk about technology, we talk about other things, but this fight is really about values. Money has values. Our financial system has values – the values of society, the values of a free society, the values of a closed society. Now, the fight is about what values? What values will the future digital currency financial system, banking system, and most importantly, currency carry? That’s what this fight is all about. What are those values? Will they be values of individual privacy? Will they be values of economic freedom? Or will they be values of closed society, control, censorship, and political power over economic choices? That’s what this fight is all about.
Lau: Today we’re here, fighting for the power to be dispersed into the hands of individuals and ultimately restoring what many see as power being restored to the economy, and where power lies. That’s what we’ve seen evolve over the last five years.
Why are we seeing such great divisions in Washington now? We’ve had five years to study this space, five years to learn, assess, and determine where we as a societal collective want to go. I don’t even want to just frame it within the United States, but globally. But why, especially in Washington, are we seeing such great divisions?
Giancarlo: It’s complicated, but let me try to explain. The 20th century was a simulated banking world. The banking system that exists today was largely built during the last century and was led by the United States. Whether it’s our central bank serving as the central bank for central banks around the world, or our dollar as the reserve currency far exceeding any other currency – at least in history – or whether it’s our banks becoming king of the hill, the most powerful banks globally, all of this was consolidated after Dodd-Frank. In many ways, Dodd-Frank was the final piece of the puzzle for all of that, and Washington played an important leadership role in our financial system. In many ways, Dodd-Frank was Washington’s victory over Wall Street. If you think about what that brought Washington, what that brought the United States, it was a very significant and unprecedented power historically, globally.
Now, there is emerging a new technology that threatens all of that. A new technology that is decentralized. A new technology that has the potential to restore control, the ability to resist inflationary pressures – from printing money and causing currency devaluation. So, it poses an incredible threat to the entire hierarchical system.
I’m not just speaking from a libertarian standpoint. The United States has benefited historically from this system, so as the leader of the old system, it’s understandable to resist financial new architecture, internet-based financial architecture. Resistance or at least I would say confusion about it is understandable. This confusion is particularly acute in the United States. Why? Because it threatens our existing system’s dominance.
Other countries that have not enjoyed this dominant position actually welcome this innovation because it may be a way for them to gain their own dominant position and control. So we’re a bit like deer in the headlights now in the United States, at least in the officialdom, because of this disruptive, challenging new technology. If you look at the potential revolutionary aspect of it in terms of payments, that’s a threat to central banks that traditionally dominate and monopolize payments, particularly wholesale payments. If you look at how it rebuts the inflation caused by printing money, because at least in the case of Bitcoin, it’s programmed scarcity. It’s a rebuttal to governments that have been profligate in their own currencies, and we know that’s been going on for decades.
By the way, this critique involves both parties. Is it surprising that Washington is not welcoming this innovation with the same enthusiasm as the information age of the internet 30 years ago? It’s not surprising that there’s resistance or at least I would say confusion about it.
What I’m disappointed in, not confused by, is the hostility. Because if we don’t see it as a threat to our existing system of dominance in the United States, but rather as an opportunity to reset our financial system to make it more democratic, open, financially inclusive, consistent with our constitutional principles of privacy, and an opportunity to rethink the surveillance scope that has already happened within the existing system, this is a huge opportunity. I hope America can be more open to it than resistant.
Finally, I want to say one thing. Gandhi talked about social change. He said, “First they ignore you, then they laugh at you, then they fight you, then you win.”
Lau: You make a very good point. What I’m hearing is that politically, this has become a political football, to lack of a better word. And there are a lot of incumbents here. By incumbents, I mean entities, institutions, and organizations that have an interest in navigating this world in a way that’s centralized. And it has to do with the dollar.
But politically, Washington is very embarrassed about FTX. This is the darling of the crypto industry, and they’ve poured dollars into a lot of campaigns. That’s a real issue.
Do you think this stirs up discontent? Giancarlo: Absolutely. It stirs up discontent. It created a political scandal, which is always good for a lot of clicks and a lot of column inches. It generated a lot of heat. Wherever there is heat, you find people gathering around the campfire in Washington. But it doesn’t shake the basic premise of cryptocurrencies. By the way, the FTX scandal is purely a Washington scandal. I recently went to São Paulo, Europe, and Japan and spoke with financial regulators there. They are not overly focused on FTX. They are focused on the opportunities that this technology brings and how to further promote it to advance their economic interests. We need to get past it. But it’s still Washington after all. It will create heat for a while. Lau: You’re absolutely right. When we have a global conversation, they don’t talk about Sam Bankman-Fried, they don’t talk about FTX, they talk about the latest innovation, the protocols that are still ongoing, where to invest, what they want to save, invest, and promote, which projects they will take market share, and how they will regulate. They are not stuck on this idea that we have to figure out how to overcome the embarrassment of getting money from someone. But that’s another program. Chris, that’s another program. Let’s take a break here, because when we come back, Chris, I want to talk to you about central bank digital currencies CBDCs, why we hear concerns about privacy, and why some regulators and policymakers want to ban the whole thing outright. So please stay tuned. The next segment will be very hot. Welcome back to Word on the Block. I’m here with Chris Giancarlo. He’s the father of crypto. He’s fighting for the future of finance. That’s the title of his latest book.
But in fact, you’re also one of the founders of the Digital Dollar Project. Tell us about this entity, tell us about the battles you foresee and why you set up the foundation because we’re now talking about CBDC.
Giancarlo: Today, there are over 130 countries worldwide studying central bank digital currencies or CBDCs, with 50 countries in advanced stages of development. China has already launched the digital yuan and put it into over 240 million wallets. Europe has said they will begin deploying the digital euro in the next few years. The UK has said they will launch the digital pound by the end of this decade. So all of this is developing very rapidly. 19 of the G20 countries are studying some form of sovereign currency. It’s almost irrelevant whether the US has a digital dollar or not because we will all be dealing with sovereign digital currencies in the coming years.
We will have a currency that’s equivalent to Amazon’s and the temptation for politicians to control, surveil, and potentially censor it will be just as great. Privacy concerns apply whether it is accomplished by central banks or stablecoin operators. Whoever achieves this, whether by central governments or private actors.
Lau: How will people think about accepting it when the digital dollar invades their privacy? The big “P” word has become a struggle against individual rights.
First of all, your paper money cannot be used in e-commerce. As we all move towards a networked world, this kind of privacy is essentially not directly applicable to the digital world. Digital transactions are digital footprints.
The “P” word also needs to turn towards “C” word censorship. We not only will be surveilled but also potentially censored.
In the digital world, your digital dollar or stablecoin can be shut down to enforce certain transactions that the government does not want you to execute. Therefore, we are concerned not only about the privacy and censorship issues of central bank digital currencies, but that the same technology will be applied whether it is done by the private or public sector, sovereign or non-sovereign.
This is why we need to come together and reiterate our First Amendment rights, reiterate our Fourth Amendment rights, and demand that there be no individual surveillance method for digital currencies, whether they are done by the government or the private sector.
But if your activity pattern indicates reasonable suspicion of criminal activity, monitoring that activity has a legitimate national interest. We must address this balance.
But I do want your audience to understand that if it is done by the private sector, there are no protections. The government will fully regulate stablecoin operators, as well as if they operate them themselves. In fact, it may be easier to influence stablecoin operators if they do not operate them themselves. We need to ensure that in this new stablecoin legislation, any type of legislation will write into it the freedom from surveillance and censorship for future digital currencies, whether they are operated by central banks or private stablecoin operators.
Lau: Is this the reason for the current tension? You also said something similar in your book, that money is too important to be left to central bankers. So the digital dollar is best protected by the constitution and legal system rather than individuals, institutions, and groups?
Giancarlo: There are three things right now that are very unfavorable for the continuation of the dollar as the world’s primary reserve currency, before we even get into digital dollars.
First and foremost is fiscal profligacy. Printing dollars just to meet short-term needs, whether it’s Covid relief or infrastructure projects or anything else, the spendthrift nature of it and the debasement of our currency is the biggest threat to the dollar.
The second, I believe, is the degree to which financial surveillance has become almost redundant. [9/11] – it has completely gotten out of proportion to where it’s unconstitutional.
The third factor that I think is damaging to the continued popularity of the dollar, frankly, is our unwillingness to modernize. FedNow, which is expected to be completed in the summer of 2023, should have been done in 2013. Real-time currency payments and so forth have long been in Europe.
It’s only in the last few years that we’ve had contactless readers on our credit cards. Europe has had them for many years. We’ve always relied on our advantages and been unwilling to modernize. This is particularly evident as we think about tokenization and digitization.
The U.S. is behind in trying digital currencies, and the political reaction is to say no to CBDC.
Again, it’s unfortunate that this has become a political issue, but it’s short-sighted. Our societal aversion to modernizing and digitizing the dollar will weaken it, as the rest of the world continues to move forward with this process.
Lau: That’s a great point. I hope you remember that thought, because when we come back, I want to ask you about the differing positions of the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) in regulating digital currencies. And I want to know Chris Giancarlo’s thoughts.
Stay tuned, everybody. You’re listening to Word on the Block.
Welcome back. You and I, Angie Lau, host of Word on the Block, and Chris Giancarlo are together.
I want to ask you about the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC). Hester Peirce recently wrote an article. Wow, it’s a blockbuster, publicly opposing Gary Gensler. And you, as the former Chairman of the CFTC, are watching your former agency’s approach in this area. But you have different commissioners within different agencies. We recently spoke with Commissioner Caroline Pham, who is very thoughtful about this area. But there are these different dialogues within different agencies as well as within the umbrella organization of the United States.
But there are too many disconnects here. Even if they want to, how do they navigate this field? In the past few years, we have repeatedly heard that people want to participate, and then they get a Wells notice or enforcement action.
Giancarlo: It’s easy for people to see it as an individual’s personal vendetta because personalizing things is easy. But in fact, this is administrative policy. Administrative policy is to resist, weaken, and reduce cryptographic innovation within the United States as much as possible. Now, there may be many people who think that cryptography is a harmful force, that it is evil, and that it allows for fraud and manipulation, so they support administrative policies to weaken it. We do need to be clear that right or wrong, this is administrative policy. It is executed by institutions.
I find it interesting that the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission are not actually administrative agencies, but independent agencies. Their responsibility is to report to Congress and the White House. But in fact, at least in the case of the SEC, it seems to be executing policies as an administrative agency. I think this is worthy of criticism, and it is also surprising.
As far as the Commodity Futures Trading Commission and the Securities and Exchange Commission are concerned, the Commodity Futures Trading Commission has historically been more open to innovation. The creation of the Commodity Futures Trading Commission has a very interesting historical origin. The Commodity Futures Trading Commission and the Securities and Exchange Commission were established at the same time, but as branches of the Department of Agriculture.
At that time, each derivative was based on a commodity produced on the land, whether it was wheat, soybeans, or oil, to hedge against price fluctuations in these commodities. The Commodity Futures Trading Commission regulates the risk transfer market, and the SEC regulates the capital formation market.
However, in the 1970s, the United States abandoned the gold standard of the dollar. Obviously, countries that use the dollar need to hedge against exchange rate risk. In order to ensure the status of the dollar as a reserve currency, a deep and liquid market is needed to hedge against this. Therefore, the Commodity Futures Trading Commission was separated from the Department of Agriculture and became an independent agency responsible for regulating new derivatives based on global currency and interest rate benchmarks. At that time, it was believed that the SEC’s innovation authorization was not enough to regulate these new products. So, the Commodity Futures Trading Commission obtained the innovation authorization.
Today, nearly 40 years later, the CFTC regulates new products that exceed virtually all other financial market regulators in the world. In fact, thousands of new products have been introduced under the CFTC’s oversight because the DNA of innovative regulation has been embedded in it.
The SEC has its advantages, placing a great emphasis on investor and consumer protection, and thus tends to take a more cautious approach.
So, five years ago, the CFTC successfully launched the Bitcoin futures market, which remains liquid, transparent, well-regulated, and orderly today. Who would have recognized that we have the world’s most well-regulated, controlled cryptocurrency market here in our homeland, managed by the CFTC?
Meanwhile, the SEC has yet to establish any form of regulated cryptocurrency market, which is certainly disappointing to many. So, the DNA of these two institutions is different, as are their operational modes. The question now is not who will become the sole regulator of all cryptocurrencies.
If the CFTC were granted regulatory authority over the spot market, it would essentially kick off a whole new wave of activity because now you have regulated Bitcoin and Ethereum spot markets, you have the derivatives market, the SEC would no longer object, at least not reasonably object, to a Bitcoin ETF, and that would allow traders to have a complete trading product, and I think that would be beneficial to the resumption of activity in the digital commodity markets such as Bitcoin and Ethereum.
Recently, I have visited Brazil, Europe, and the Far East and Japan. These countries are going to provide rules through strict legislation, but they will provide rules for innovation. Once they do that, innovation will leave our shores. It will go offshore and completely reverse the direction of the development of the first wave of the internet 30 years ago, when everything came from the United States. Everything will come from somewhere else in the future.
But I’ll tell you something. No government lasts forever. I served as the CFTC chairman. Today, I am a former chairman. There will be another former chairman, and the next administration always reacts to the previous administration. This policy is not going to last. As Winston Churchill said, Americans will always do the right thing after trying everything else. We are trying everything else now to do the right thing. Eventually, we will regain leadership and lead this innovation again.
Lau: You’re going to write a book next. Amazing! Chris is writing a book too. I hope I didn’t spoil the surprise you don’t want people to know. But I’m very excited about this. It will be published next year. You’re still in the process of writing it, and just like your first book, it should be a reference guide for many people. What do you think is the most critical issue next, which will affect the evolution we are heading towards?
Giancarlo: Thank you very much. I’m writing this book with Jim Harper, a scholar at the American Enterprise Institute. We are looking at the obvious trajectory that digital currency is leading us towards, which is towards large, single digital currency platforms. They will be very efficient, like Amazon, and people will quickly get used to and adopt them for efficiency reasons, but they will be huge information honeypots. We need to be very mindful of our privacy and our ability to maintain anonymity in these systems, and really focus on the audits in these systems, whether they are sovereign or non-sovereign, it doesn’t matter.
