J. Christopher Giancarlo, aka "Crypto Dad," earned his stripes in the crypto industry as one of the more knowledgeable, sensitive and forward-thinking regulators of digital assets back when he led the influential Commodity Futures Trading Commission (CFTC). He was still chairman of that organization when he (and fellow pro-innovation reg Daniel Gorfine) began advocating for a "digital dollar."
Today, about three years later, Giancarlo is still on that track – and his arguments have likely never been more pertinent. The Federal Reserve (along with a supermajority of central banks worldwide) is currently studying the feasibility and potential benefits of a central bank digital currency (CBDC).
Giancarlo's Digital Dollar Project argues that a U.S. CBDC could bring the country and the world's economy into the 21st century. The effects could be widespread: simplifying taxation, reducing costs across the financial system and making the U.S. more resilient and better able to respond to economic shocks (like the coronavirus pandemic).
This article is part of CoinDesk’s Payments Week series.
Though Giancarlo wants to bolster the U.S. government, he is still a free-market advocate. The Digital Dollar Project argues that a CBDC should be a public-private endeavor, with banks or crypto companies helping to build the technology that would make it possible. (His pro-market perspective helps explain why the former regulator was quick to find employment as an advisor in the crypto industry.)
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In this conversation, Giancarlo addressed some of those privacy concerns, restated the need for monetary innovation and discussed what in crypto can still capture his attention after all these years. It has been lightly edited for clarity and brevity.
Would CBDCs conflict with crypto adoption?
The best protection consumers have would be to have a choice between a digital currency that is sovereign, or backed by the government, and non-sovereign, or backed by a private company.
Should a digital U.S. dollar, minted either by the Fed or the Treasury, have the same exact privacy assurances as cash?
A customer’s ability to gather information [about their transactions] should be their private business. Similarly, people may feel that where they spend their money – it shouldn't be mined by social media companies nor should it be mined by the government, provided it's legal.
But it depends on how it's designed. I believe in absolute privacy, not just for consumer transactions, but for non-consumer transactions, like charitable contributions. If I do them in cash, it should be my business.
But if it's done with a digital dollar as the Fed proposes, with the intention to only protect consumer transactions, the question remains whether the government has the right to monitor those transactions.
For those who say therefore the government can't be trusted, let's outsource money to the private sector. I'd say consider what we've outsourced in the public square to the private sector, in terms of surveillance and censorship.
Where do you think the CFTC's role ends and the Securities and Exchange Commission’s begins? Could you draw a clear line for us?
The SEC’s primary role is oversight of markets for capital transfer and capital formation. That means somebody with a great idea, but doesn't have the money to realize it can go and [raise capital from] somebody who has money, with the aim of making a return on that money. That may be in bonds, debt or in equities.
The CFTC is a market regulator for markets involving risk transfer and risk pricing. Its oversight includes companies that may be exposed to the risks of rising or falling commodity prices, foreign exchange rates and interest rates.
That company, say a factory, that has the risk of rising energy prices, can find someone who's willing to take on that risk in return for a fee. It’s a way of transferring risk from those who have it but can't bear it, to those that don't have that risk, but are willing to take it on in return for a fee.
The United States is the only major economy to have a separate regulator for both risk transfer and capital formation.
Is there something about U.S. regulation and law that impedes efficient oversight of markets?
New technology. When we invented a new technology for transportation – from the railroads to air travel – we came up with a new regulatory system, a new form of technology.
Because crypto is a new architecture confirming ownership and transfer of value, based on new technology, we need a new, customized regulatory regime.
Who do you think has benefited most from crypto so far?
Certainly long term crypto holders.
But more broadly, the potential for financial inclusion [using crypto] is much greater. The shortcomings with the existing system now is that it’s slow, expensive and exclusive.
It's slow because somebody's got to confirm [a great deal of] information. It's expensive in terms of fees associated with financial tools like credit cards. That's why when you send money around the globe, it costs anywhere between 7%–17%. It's exclusive because if you can’t provide credentialed identity, then you can't use the system.
When people ask what is digital currency? What is cryptocurrency? What is central bank digital currency? It's a breakthrough on all those shortcomings.
Suddenly, money is no longer slow, expensive or exclusive.
But what does it take for a technology to really break through?
Financial censorship has gone from an abstract idea to a harsh reality for Russians who suddenly found themselves unbanked by the West and their own government.
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