Exclusive Interview with Former CFTC Chairman: A Battle for the Future of US Currency
Interview with Former CFTC Chairman: The Future of US Currency
Source: Forkast Compiled by: hiiro, SevenUpDAO
According to the co-founder of the Digital Dollar Foundation, Chris Giancarlo, 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 central bank digital currencies.
In an interview with Forkast Editor-in-Chief Angie Lau, Giancarlo expressed disappointment with Washington’s hostility to cryptocurrencies. His comments were directed at the recent enforcement action against cryptocurrencies by the U.S. Securities and Exchange Commission.
“Deer in headlights”: We’re a bit like deer in headlights in official U.S. circles now when it comes to these transformative and challenging new technologies. If you look at the potential revolution it represents in payments, it’s a threat to central bankers who have traditionally dominated and monopolized payments.
Resistance to digitization in the U.S.: I’m disappointed — not surprised, I get that. I’m disappointed with the hostility. Because if we don’t look at it as a threat to America’s existing system of dominance, but look at it as an opportunity to reset our financial system to make it more democratic, open, financially inclusive, and consistent with our constitutional principles of privacy rights, and rethink opportunities that fall outside the scope of financial surveillance already underway in the existing system, then it’s a tremendous opportunity. I hope America doesn’t resist it, but embraces it more openly.
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FTX is Washington’s scandal: By the way, FTX’s scandal is entirely Washington’s scandal. Recently, I went to São Paulo, Brazil, I went to Europe, I went to Japan and talked to financial regulators there. They’re not overly concerned about FTX. They’re concerned about the opportunities this technology brings and how to further advance it to promote their own economic interests. We need to get past it. But it’s still 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 is done by a central bank or a stablecoin operator. Whoever does it, whether it is the central government or private actors.
Angie Lau: Cryptocurrencies are the future of finance, and they’re becoming more and more important over time. But as the U.S. government struggles with how to regulate and possibly embrace this new financial era, we’re left with a lot to talk about. From the Securities and Exchange Commission’s enforcement actions (which can be seen more as a backlash against cryptocurrencies than an embrace of them) to the exploration of a digital dollar. We’re going to get some deep insights from industry-leading experts.
Welcome to Word on the Block, the series that takes a deep dive into the emerging technology of blockchain and how it’s shaping our world at the intersection of business, politics, and economics. That’s what we cover here on Forkast.News. I’m editor-in-chief Angie Lau.
Today, I’m sitting down with a Washington insider who’s now a true maverick, disrupting finance. He’s been called the “Crypto Dad” for his forward-thinking approach to cryptocurrency regulation. He served as the chairman of the U.S. Commodity Futures Trading Commission (CFTC) and is now breaking new ground in the world of digital currency. Ladies and gentlemen, I’m thrilled, as I said, to welcome Chris Giancarlo to Word on the Block.
Chris, great to have you with us today. Are you ready?
Giancarlo: I’m ready. It’s great to be with you again. This is not our first rodeo, so it’s great to be back together.
Lau: Indeed. We had a conversation earlier for Forkast because we saw this industry emerging. You were working at the CFTC at the time and pioneering, as I said. Your book, CryptoDad: The Fight for the Future of Money, is a must-read. I love that title. It’s so accurate, isn’t it? It is a fight. It really is a fight.
Giancarlo: It is a fight. We think about technology, we think about other things, but this fight is really about values. Currency has values. Our financial system has values – the values of society, the values of a free society, the values of a closed society. What are the values of the future digital currency financial system, the banking system, and most importantly, the values that currency is going to carry? That’s what this fight is all about. What are those values? Are they going to be the values of personal privacy? Are they going to be the values of economic freedom? Or are they going to be the values of a closed society, of control, of censorship, and of political power over economic choice? That’s what this fight is all about.
Lau: Today we’re here to decentralize power to individuals and ultimately restore power to where it belongs in the eyes of many from an economic perspective, and where power is. This is what we’ve seen evolve over the past five years.
Why do we now see such great division in Washington? We’ve had five years to study the field, to learn, assess, and determine where we as a societal collective want to go. I don’t even want to frame it just within the United States, but globally. But why, particularly in Washington, do we see such great division?
Giancarlo: It’s complicated, but let me try to explain. The 20th century was a world of analog banking. The banking system that exists today was largely built and led by the United States during much of the last century. Whether it’s our central bank as the central bank of central banks around the world, or our dollar as the reserve currency far beyond any other currency — at least historically — whether it’s our banks becoming the kings of kings, the most powerful banks in the world, all of this was solidified after the Dodd-Frank Act. In many ways, the Dodd-Frank Act was the final piece of the puzzle for all of this, and Washington played a crucial leadership role in our financial system. In many ways, the Dodd-Frank Act was Washington’s victory over Wall Street. If you think about what that brought to Washington, what it brought to the United States, it’s very significant and unprecedented in global history.
Now, there’s a new technology that threatens all of this. A new technology of decentralization. A new technology that has the potential to restore control, to resist inflationary pressures (through currency debasement caused by printing money). Therefore, it poses an incredible threat to the entire hierarchy.
I’m not speaking from a liberal standpoint. The United States has benefited from this system historically, so as the leader of the old system, it’s understandable to resist financial new architecture, internet-based financial architecture. Resisting or at least I would say being confused by it is understandable. This confusion is especially severe in the United States. Why? Because it threatens the dominant position of our existing system.
Other countries that have not enjoyed this dominant position actually welcome this innovation because it may be a way for them to gain dominance and control themselves. So we’re a bit like deer in the headlights right now in the US, at least in officialdom, because of this disruptive, challenging new technology. If you look at the potential revolutionary aspects of it around payments, that’s a threat to central banks that have traditionally dominated and monopolized payments, especially wholesale payments. If you look at how it pushes back on the inflationary effect of printing money because at least in the case of Bitcoin, it’s programmed scarcity. It’s a pushback against governments that have been profligate with their own currency and we’ve known that has been the case for decades.
By the way, this criticism has involved both parties. Is it any surprise that Washington is not welcoming this innovation with the same enthusiasm as it did the information age of the internet 30 years ago? It’s not surprising to resist or at least I would say to be puzzled by it.
What I’m disappointed by, not puzzled by, is the hostility. Because if we don’t view it as a threat to America’s existing system of dominance, but as an opportunity to reset our financial system to make it more democratic, more open, more financially inclusive, more consistent with our constitutional principles of privacy, an opportunity to revisit the financial surveillance scope that has already occurred within the existing system, then it’s a tremendous opportunity. I would hope that America would be more open to it than resistant to it.
Lastly, I’ll just 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 bring up a really good point. What I hear is that politically, this has become a political football, to lack of a better word. 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 centrally controlled way. And that is around the dollar.
But politically, Washington is very embarrassed about FTX. This is the darling of the crypto industry that has poured dollars into many campaigns. It’s a real problem.
Do you think this is fanning the flames of discontent? Giancarlo: Absolutely. It fanned the flames of discontent. It created a political scandal, which always generates a lot of clicks and a lot of newspaper articles. It generated a lot of heat. Wherever there is heat, you will find people gathering around the campfire in Washington. But it doesn’t shake the fundamental premise of cryptocurrency. By the way, FTX’s scandal is a Washington scandal through and through. I recently went to São Paulo, Brazil, Europe, and Japan, and talked to financial regulators there. They are not overly concerned about FTX. They are focused on the opportunities that this technology brings and how to further promote it to advance their own economic interests. We need to move beyond it. But it’s still Washington. It will still generate heat for a while. Lau: You’re absolutely right. When we have a global dialogue, they don’t talk about Sam Bankman-Fried, they don’t talk about FTX, they talk about the latest innovations, ongoing protocols, where to invest, what projects they want to save, invest in, and promote, how they will capture market share, and how they will regulate. They are not fixated on this idea that we have to find a way to overcome the embarrassment of getting money from someone. But that’s another show. Chris, that’s another show. Let’s take a break here, because when we come back, Chris, I want to talk to you about central bank digital currencies, why we’re hearing concerns about privacy, and why some regulators and policymakers just want to ban the whole thing outright. So please stay tuned. The next segment is going to be very hot. Welcome back to Word on the Block. I’m here with Chris Giancarlo. He is the father of cryptocurrency. He is 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 Foundation. Tell us about this entity, tell us about the fight you foresee, and tell us why you formed the foundation, because we’re now talking about CBDC.
Giancarlo: Today, over 130 countries worldwide are studying central bank digital currencies or CBDC, with 50 countries in advanced stages of development. China has already rolled out the digital yuan and put it into over 240 million wallets. Europe says they will begin deploying the digital euro in the next few years. Britain says they will launch the digital pound by the end of this decade. So it’s all very rapidly evolving. 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’re going to be dealing with sovereign digital currencies in the next few years.
We will have a currency equivalent to Amazon, and the temptation for politicians to control, monitor, and potentially censor it will be just as great. Privacy concerns apply whether completed by a central bank or a stablecoin operator. Whoever accomplishes this, whether by central government or private actor.
Lau: How will people consider accepting it when digital dollars infringe on their privacy? This big “P” word has become a struggle for individual rights.
First, your paper money cannot be used in e-commerce. As we all move into a networked world, this privacy is inherently not directly applicable to the digital world. Digital transactions are digital footprints.
The “P” word also needs to turn to the scrutiny of the “C” word. We will not only be monitored, but may also be scrutinized.
In the digital world, your digital dollars or stablecoins may be shut down to enforce transactions that the government does not want you to perform. Therefore, we are concerned not only about the privacy and censorship issues of central bank digital currencies, but also that the same technology will be applied whether completed by the private or public sector, sovereign or non-sovereign.
This is why we need to unite, reaffirm our First Amendment rights, reaffirm our Fourth Amendment rights, and demand that there be no personal surveillance methods for digital currencies, whether they are completed by the government or the private sector.
However, if your activity pattern indicates reasonable suspicion of criminal behavior, monitoring such activity has a legitimate national interest. We must strike this balance.
But I do want your audience to understand that if completed by the private sector, there are no protective measures. The government will fully regulate stablecoin operators, as well as if they operate them themselves. In fact, it may be easier to affect 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 of future digital currencies, whether they are operated by central banks or private stablecoin operators.
Lau: Is this the reason for the tension now? You also said something similar in your book, that the currency is too important to be left to central bankers. So is it better for digital dollars to be protected by the constitution and legal system rather than individuals, institutions, and groups?
Giancarlo: There are three things right now that are very unfavorable to the continuation of the dollar as the world’s primary reserve currency.
First and far and away the most important is fiscal profligacy. The spending and the debasement of our currency that comes with printing dollars just to meet short term needs, whether it’s Covid relief or infrastructure projects or anything else, the profligate spending and the debasement of our currency is the biggest threat to the dollar.
The second, I think, is the degree of financial surveillance has become almost redundant. [September 11th] – it’s gone completely out of proportion to the point of being unconstitutional.
And the third factor, I think, that damages the continued spread of the dollar, quite frankly, is our unwillingness to modernize. FedNow, which is expected to be completed in the summer of 2023, was supposed to be completed in 2013. Real-time monetary payments and so forth have been in Europe for a long time.
We only got contactless readers on our credit cards in the last few years. Europe’s had them for years. We’ve relied on our advantage and not been willing to modernize. And it’s particularly evident as we consider tokenization and digitization.
The United States is lagging behind in trying to digitize, and the political reaction is to reject CBDCs.
Again, it’s unfortunate that this has become a political issue, but it’s short-sighted. Our societal aversion to the modernization and digitization of the dollar will weaken it as the rest of the world continues to push forward.
Lau: That’s a great point. I hope you keep that thought in mind because when we come back, I want to ask you about the differing positions of the SEC and the CFTC in regulating digital currencies. And I want to know Chris Giancarlo’s opinion.
Stay tuned everybody. You’re listening to Word on the Block.
Welcome back. You and I, Angie Lau, your host of Word on the Block, and Chris Giancarlo.
I want to ask you about the SEC and the CFTC. Hester Peirce recently came out with an op-ed. Wow, what a piece, publicly opposing Gary Gensler. And then you, as a former chairman of the CFTC, are watching your former agency’s moves in this space. But you’ve got differing commissioners within different agencies. We recently spoke with Commissioner Caroline Pham, who is very thoughtful on this space. But you have these differing conversations within different agencies and within the umbrella of the United States organization.
But there’s too much disconnection here. Even if they want to, how can they navigate in this field? Over the past few years, we have repeatedly heard people wanting to get involved, and then they get a notice from Wellstone or law enforcement.
Giancarlo: It’s very easy for people to see it as an individual’s personal vendetta because it’s easy to personalize things. But in fact, it’s administrative policy. Administrative policy is to resist, weaken, and lower cryptographic innovation as much as possible within the United States. Now, there may be many people who think that encryption is a harmful force, that it is evil, that it allows for fraud and manipulation, and therefore they support administrative policies to weaken it. We do need to be clear that right or wrong, this is administrative policy. It is enforced 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 ones. 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 for the Commodity Futures Trading Commission and the Securities and Exchange Commission, the Commodity Futures Trading Commission has always been more open to innovation. The creation of the Commodity Futures Trading Commission has a very interesting historical origin. The Commodity Futures Trading Commission was established at the same time as the Securities and Exchange Commission, but as a branch of the Department of Agriculture.
At that time, each derivative was based on a commodity produced on land, whether it was wheat, soybeans, or oil, to hedge against the risks associated with changes in the prices of these commodities. The Commodity Futures Trading Commission regulates the risk transfer market, while the Securities and Exchange Commission regulates the capital formation market.
But in the 1970s, the United States abandoned the gold standard for the dollar, and it was clear that countries using the dollar needed to hedge against exchange rates. To ensure the dollar’s reserve currency status, a deep and liquid market was 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 derivative products based on global currency and interest rate benchmarks. At that time, it was believed that the SEC’s innovation authorization was insufficient to regulate these new products. So, the Commodity Futures Trading Commission received the innovation authorization.
40 years from now, the new products regulated by the Commodity Futures Trading Commission will almost surpass all other financial market regulators in the world. In fact, thousands of new products have emerged under the management of the Commodity Futures Trading Commission, because the innovative regulatory agency’s DNA is deeply embedded in them.
The Securities and Exchange Commission has its advantages and focuses heavily on investor and consumer protection, so it tends to take a more cautious approach.
So, five years ago, the Commodity Futures Trading Commission successfully launched the Bitcoin futures market, which is still highly liquid, transparent, well-regulated and orderly today. Who would admit that we have the world’s most complete controllable cryptocurrency market, managed by the Commodity Futures Trading Commission?
Meanwhile, the Securities and Exchange Commission has yet to establish any form of cryptocurrency regulatory market, which is indeed disappointing for many. Therefore, the DNA of these two institutions is different and their operating methods are also different. The problem now is not who will become the sole regulator of all cryptocurrencies.
If the Commodity Futures Trading Commission is granted the management authority of the spot market, this will essentially restart a whole wave of activities, because now you will have a regulated Bitcoin and Ethereum spot market, you will have a derivatives market, and the Securities and Exchange Commission will no longer have objections, at least not reasonably to a comparable Bitcoin ETF, which will allow traders to have a complete trading product, I believe this will be conducive to the resumption of the digital commodity market activities such as Bitcoin and Ethereum.
Recently, I have been to Brazil, Europe and Far East Japan. These countries are providing rules for innovation through strict laws. Once this is done, innovation will leave the US coast. It will go abroad and completely reverse the development direction of the first wave of the Internet 30 years ago when everything came from the US. Everything in the future will come from elsewhere.
But I want to tell you something. No government can last forever. I served as chairman of the Commodity Futures Trading Commission. Today, I am a former chairman. Someday, our current chairman will become a former chairman, and the next government always reacts to the previous government. This policy will not last. As Winston Churchill said, Americans will eventually make the right choice after trying all options. We are now testing all options to do the right thing. Eventually, we will regain leadership and once again lead this innovation.
Lau: You are going to write a book next. How exciting! Chris is writing a book right now. I hope I didn’t reveal a surprise that you don’t want people to know. But I’m very excited about it. It will be published next year. You’re still in the process of writing it, and like your first book, it should be a reference guide for many people. What do you think is the most critical issue for the next step, which will affect the path we are heading towards?
Giancarlo: Thank you very much. I am writing this book with Jim Harper, a scholar at the American Enterprise Institute. We are looking at the obvious path that digital currencies are leading us towards, which will lead us towards large, single digital currency platforms. They will be highly efficient, like Amazon, and people will quickly become accustomed to and adopt them for efficiency reasons, but they will be huge information honeypots. We need to be very concerned about our privacy and our ability to maintain anonymity in these systems, and really focus on the scrutiny in these systems, whether by sovereign or non-sovereign states, it doesn’t matter.