Interview with Former CFTC Chairman: A Battle for the Future of the U.S. Currency

Source: Forkast Compilation: hiiro, SevenUpDAO

According to Giancarlo, co-founder of the US Digital Dollar Foundation, central bank digital currencies (CBDCs) are the currency of the future, and countries that resist innovation risk losing their influence in the global financial arena. The foundation is a non-profit organization dedicated to research and public discussion of the advantages and challenges of central bank digital currencies.

In an interview with Forkast Editor-in-Chief Angie Lau, Giancarlo expressed frustration with Washington’s hostility towards cryptocurrencies. His comments came in response to the SEC's recent enforcement actions against cryptocurrencies.

Highlights of this article

"Deer in headlights": We're a bit of a deer in headlights right now in the US official sector because of these transformative and challenging new technologies. If you look at its potential revolution in payments, it's a threat to central bankers who have traditionally dominated and monopolized payments.

US resistance to digital: I am disappointed - not confused, I understand that. I am disappointed by the hostility. Because if we see it not as a threat to the dominance of the existing American system, but as an opportunity to reset our financial system to be more democratic, open, financially inclusive, and consistent with our constitutional principles There is a huge opportunity to rethink the right to privacy within the existing system outside the scope of financial surveillance that is already in place. I hope the US will not resist it, but be more open.

FTX is a Washington scandal: By the way, the FTX scandal is a total Washington scandal. Recently I went to Sao Paulo, Brazil, I went to Europe, I went to Japan to talk to the financial regulators there. They are not overly concerned with FTX. They focus on the opportunity this technology presents and how to push it further to further their own economic interests. We need to go beyond it. But it's still Washington after all. It will also be controversial for a while.

The Amazon of money: We will have the Amazon of money, and the temptation for politicians to control, monitor and potentially censor it will be equally great. Whether it is done by a central bank or a stablecoin operator, privacy concerns exist. It doesn't matter who does it, whether it's done by the central government or by private actors.

Full interview

Angie Lau: Digital currencies are the future of finance, and they are becoming more and more important as time goes on. But as the U.S. government grapples with how to regulate and possibly embrace this new financial age, we're left with a lot to discuss. From SEC enforcement actions (where the attitude toward cryptocurrencies is now more antipathy than embrace) to the exploration of a digital dollar. We'll get in-depth insights from industry-leading experts.

Welcome to Word on the Block, a series that delves into blockchain and the emerging technology shaping our world at the intersection of business, politics, and economics. That's what we reported on Forkast.News. I'm Angie Lau, editor-in-chief of Forkast.

Today, I sat down with a Washington insider who is now a true maverick, and I couldn't be happier to welcome him to the show again. He's not afraid to challenge the status quo and make waves in the financial world. Known as the “Father of Cryptocurrency” due to his forward-looking approach to cryptocurrency regulation, he served as chairman of the U.S. Commodity Futures Trading Commission (CFTC) and is now blazing new trails in the digital currency space. Viewers, I'm so excited, as I said, let's welcome Chris Giancarlo to Word on the Block.

Chris, it was a pleasure to be with you today. Let's get straight to it. are you ready?

Giancarlo: I'm ready. It's great to be with you again. This is not the first time we have participated in this kind of event, so it is great to be together again.

Lau: Exactly. We had discussions for Forkast earlier because we saw the industry emerge. You were working at the CFTC and you were a trailblazer like I said. Your title, CryptoDad: The Fight for the Future of Money, is a must read. I love this title. It's accurate, isn't it? This is a battle. It is indeed a battle.

Giancarlo: It was a battle indeed. We think about technology, we think about other things, but the battle is really about values. Currencies have values. Our financial system has values—the values of society, the values of a free society, the values of a closed society. What values is the battle now about? What values will the financial system, the banking system and most importantly the currency of the future digital currency carry. That's what this fight is all about. What are those values? Will they be values of personal privacy? Will they be the values of economic freedom? Or the values of closed societies, the values of control, censorship, and political power over economic choices? That's what this fight is all about.

Lau: Here we are today, fighting for the decentralization of power into the hands of individuals and the eventual restoration of power to individuals for the first time in what many seem to be economically speaking, and where that power resides. That's the evolution we've seen over the past five years.

Why are we seeing so much division in Washington right now? We've had five years to study the field, five years to learn and assess and determine where we want to go as a collective society. I don't even want to frame it just within the United States, but globally. But why, especially in Washington, do we see such a divide?

Giancarlo: It's complicated, but let me try to explain. The 20th century was the world of analog banking. The banking system that exists today was built over most of the last century and is dominated by the United States. Whether it's our central bank as the central bank of the world's central banks, or our dollar as a reserve currency that far surpasses any other - at least historically - whether it's our banks being kings of the kingdom, the most powerful in the world banks, all of which were consolidated after Dodd-Frank. In many ways, Dodd-Frank is the final piece of the puzzle, and Washington has 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 it, what kind of power this brings to Washington, what kind of power it brings to the United States, is quite remarkable and unprecedented in global history.

Now, a new technology has emerged that threatens all of that. A new technique has emerged that decentralizes the centralizer. A new technology that has the potential to restore control, the ability to resist inflationary pressures (devaluation of currencies through money printing). As such, it poses an incredible threat to the entire hierarchy.

Nor am I speaking only from a liberal standpoint. The United States has historically benefited from this system, so as the leader of the old system, it is understandable that there is resistance to the new financial architecture, the Internet-based financial architecture. Resistance or at least I would say confusion about it is understandable. This confusion is especially acute in the United States. Why? Because it threatens the dominance of our existing system.

Other countries that did not enjoy such dominance actually welcomed this innovation as perhaps a way for them to gain dominance and control for themselves. So we're kind of a deer in the headlights right now in America, at least in the official sector, because of this transformative, challenging new technology. If you look at how potentially revolutionary it is in payments, it's a threat to central banks that have traditionally dominated and monopolized payments, especially wholesale payments. If you look at how it counters inflation by printing money, because at least in the case of Bitcoin, it's programmed scarcity. It's a rebuttal to governments' profligacy with their own currencies, which we've known for decades.

By the way, this criticism involves two political parties. Is it surprising that Washington does not welcome this innovation with the same enthusiasm that it did in the Internet information age 30 years ago? It's no surprise that there's resistance, or at least I'd say confusion about it.

What I'm trying to say is that I'm disappointed by the hostility, not confused. Because if we see it not as a threat to the dominance of the existing American system, but as resetting our financial system to make it more democratic, open, financially inclusive, consistent with the constitutional principles of our privacy rights, Consider the opportunity for the scope of financial surveillance that is already happening in the existing system, then this is a huge opportunity. I wish America would be more open to accepting it, not resisting it.

Finally I want to say a word. Gandhi spoke of social change when he said, "At first they ignore you, then they laugh at you, then they beat you, and then you win."

Lau: You raise a very good point. What I hear is that politically, this has become, for lack of a better word, a political football. There are a lot of incumbents here. By incumbents, I mean those entities, institutions, and institutions that are interested in navigating the world in a centrally controlled manner. This has to revolve around the dollar.

But politically, Washington is very awkward with FTX. This is the darling of the crypto industry, and they've poured dollars into many campaigns, and that's a real problem.

Do you think this stoked discontent?

Giancarlo: Absolutely. It stokes discontent. It instigates a political scandal, which always gets a lot of hits and a lot of newspaper articles. It creates a lot of heat. Wherever there's heat, you'll find people gathering around bonfires in Washington. But that doesn't shake the fundamental premise of cryptocurrencies.

The FTX scandal, by the way, is all about Washington. I recently traveled to São Paulo, Brazil, to Europe, to Japan, to talk to financial regulators there. They are not overly concerned with FTX. They focus on the opportunity this technology presents and how to push it further to further their own economic interests. We need to go beyond it. But it's still Washington after all. It also causes heat for a while.

Lau: You are so right. When we have global conversations, they don't talk about Sam Bankman-Fried, they don't talk about FTX, they talk about the latest innovations, protocols that are still going on, where to invest, which projects they want to save, invest in and promote, how they will Capturing market share and how they will be regulated. They don't fixate on the idea that we have to figure out how to get over our 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 get back, Chris, I want to talk to you about central bank backed digital currency CBDCs, why we're hearing concerns about privacy and why some regulators and policymakers outright want to ban the whole thing. So please stay tuned. The next session will 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. This is the title of his latest book.

But in fact, you are also one of the founders of the Digital Dollar Foundation. Tell us about the entity, tell us about the battles you foresee and why you formed the foundation, because we're talking about CBDCs right now.

Giancarlo: Today, more than 130 countries around the world are researching central bank digital currencies or CBDCs, 50 of which are in advanced stages of development. China has launched a digital yuan and put it in more than 240 million wallets. Europe says they will start deploying a central bank digital euro within the next few years. The UK says they will launch a digital pound by the end of this decade. So it's all moving very rapidly. Nineteen of the G20 countries are working on some form of sovereign currency. Whether the U.S. has a digital dollar or not hardly matters because we'll be dealing with sovereign digital currencies for years to come.

We will have the Amazon equivalent of currency, and the temptation for politicians to control, monitor and potentially censor it will be equally great. Whether it is done by a central bank or a stablecoin operator, privacy concerns apply. Whoever did it, whether it was done by the central government or by private actors.

Lau: How do people think about accepting a digital dollar when it invades their privacy? The big "P" word has become a struggle for individual rights.

First of all, your banknotes cannot be used in e-commerce. As we all move towards a networked world, this kind of privacy by its nature cannot be directly applied to the digital world. A digital transaction is a digital footprint.

The "P" words also need to move to the review of the "C" words. Not only will we be watched, but we may also be censored.

In the digital world, your digital dollar or stablecoin may be shut down to perform certain transactions that the government does not want you to perform. So our concern is not only the privacy and censorship issues of central bank digital currencies, but whether it is done by the private sector or the public sector, whether it is sovereign or non-sovereign, the same technology will be applied.

That’s why we need to come together, reaffirm our First Amendment rights, reaffirm our Fourth Amendment rights, and demand that digital currencies, whether done by the government or the private sector, have a method free of personal surveillance.

However, if your activity patterns suggest a reasonable suspicion of criminal conduct, there is a legitimate national interest in monitoring that activity. We have to work out that balance.

But I do want your audience to understand that if it's done by the private sector, there are no protections. Governments will fully regulate stablecoin operators, and if they run them themselves. In fact, it may be easier to influence the practices of stablecoin operators if they do not operate themselves. We need to make sure that in this new stablecoin legislation, any kind of legislation that enshrines the freedom from surveillance and censorship of future digital currencies, whether by central banks or by private stablecoin operators operate.

Lau: Is this what is causing the tension now? You say something similar in your book that money is too important to be left to central bankers. So is a digital dollar best protected by a constitution, a legal system, rather than people, institutions, and groups?

Giancarlo: Before we even get into a digital dollar, there are three things right now that are very bad for the continuation of the dollar as the world's primary reserve currency.

First, and far most important, is fiscal profligacy. Printing dollars just to meet short-term needs, be it Covid relief or infrastructure projects or whatever, profligate spending and devaluing our currency is the biggest threat to the dollar.

The second, I think, is that the degree of financial surveillance has become almost redundant. [September 11] - It has been completely out of proportion to the point of being unconstitutional.

The third factor that I think is hurting the continued popularity of the dollar is, quite frankly, our reluctance to modernize. FedNow, which is expected to be completed in the summer of 2023, was supposed to be completed in 2013. Europe has had real-time monetary payments and so on a long time ago.

Only in the last few years have we had contactless readers on our credit cards. Europe has had it for many years. We have been relying on our strengths, unwilling to modernize. This is especially evident when we consider tokenization and digitization.

The U.S. is lagging behind in experimenting with digital currencies, and the political response has been to reject CBDCs.

Again, it's unfortunate that this has become a political issue, but it's short-sighted. Our societal aversion to the digital modernization of the dollar will weaken the dollar as the rest of the world continues to push through the process.

Lau: That's a good point. I hope you keep this thought in mind, because when we get back, I want to ask you about the different positions of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in regulating digital currencies. I also want to know what Chris Giancarlo thinks.

Everyone please continue to pay attention. You're listening to Word on the Block.

Welcome back. You're with me, Angie Lau, host of Word on the Block, and Chris Giancarlo.

I want to ask you about the US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC). Hester Peirce recently published an article. Wow, what a blockbuster, openly against Gary Gensler. And then you, as the former chair of the CFTC, you're watching what your former agency did in this area. But you have different commissioners within different agencies. We recently spoke with Commissioner Caroline Pham and she is very thoughtful about this area. But you have these different conversations within different agencies and within the U.S. umbrella.

But there's just too much disconnect here. Even if they wanted to, how could they navigate the field? Over the past few years, we've heard repeatedly that people want to get involved and then they get a Wells notice or enforcement action.

Giancarlo: It's easy to see it as one person's personal hatred, because it's so easy to take things personal. But in fact, this is administrative policy. It is executive policy to resist, weaken, and degrade, as much as possible, innovation in encryption technology within the United States. Now, there are probably a lot of people who think that encryption is a pernicious force, that it's evil, that it allows fraud and manipulation, and so they support administrative policies to weaken it. We do need to be clear, rightly or wrongly, this is administrative policy. It is enforced by institutions.

I found out that the CFTC and the SEC are not actually executive branch agencies, but independent agencies. Their job is to report to Congress and the White House. But in fact, at least in the case of the SEC, they appear to be enforcing policy as an executive branch agency. I think this deserves both criticism and surprise.

As far as the CFTC and the SEC are concerned, the CFTC has historically been more open and innovative. The creation of the Commodity Futures Trading Commission has a very interesting historical origin. The Commodity Futures Trading Commission was created at the same time as the Securities and Exchange Commission, but as a division of the Department of Agriculture.

At that time, every derivative was based on some commodity that was produced on the land, whether it was wheat, soybeans, oil, and it was a hedge against the risk of changes in the price of these commodities. The Commodity Futures Trading Commission regulates risk transfer markets and the Securities and Exchange Commission regulates capital formation markets.

But in the 1970s, when the U.S. moved away from the dollar gold standard, it became clear that countries around the world that used dollars needed to hedge their exchange rates. To secure the dollar's status as a reserve currency, deep and liquid markets are needed to hedge this. As a result, the CFTC was spun off from the Department of Agriculture as an autonomous agency charged with overseeing new derivative products based on global currency and interest rate benchmarks. It was believed at the time that the SEC's innovation mandate was insufficient to regulate these new products. So, the CFTC has an innovation mandate.

Today, 40 years later, the CFTC regulates more new products than nearly every other financial market regulator in the world. In fact, tens of thousands of new products have seen the light of day under the CFTC because the innovation regulator's DNA has always been in it.

The SEC has its strengths and is very focused on investor protection and consumer protection, so it tends to take a more cautious approach.

Therefore, 5 years ago, the CFTC successfully launched the Bitcoin futures market, which is still highly liquid, transparent, well-regulated, and orderly. Who will admit that we have the most complete and controlled cryptocurrency market in the world, but it is managed by the Commodity Futures Trading Commission?

Meanwhile, the SEC still hasn’t established any sort of regulated market for cryptocurrencies, which is a real disappointment to many. So the two institutions have different DNA and operate differently. The question now is not who will be the sole regulator of all cryptocurrencies.

If the CFTC were to be given regulatory authority over the spot market, that would basically restart a whole wave of activity because now you'd have a regulated spot market for bitcoin and ethereum, you'd have a derivatives market, securities trading There will be no more objections from the committee, at least not a reasonable objection to a Bitcoin ETF, which would allow traders to own a full-fledged trading product, which I think would be beneficial for the resumption of market activity in digital commodities like Bitcoin and Ethereum.

Recently, I have been to Brazil, Europe and Japan in the Far East. These countries are passing strict laws, but they will provide the rules for innovation. Once it does, innovation will leave American shores. It will go abroad, completely reversing the direction of the first wave of the Internet 30 years ago - when everything came from the United States. Everything in the future will come from elsewhere.

However, I'm going to tell you one thing. No government lasts forever. I was the chairman of the Commodity Futures Trading Commission. Today I am the former chairman. One day, our current president will also become the former president, and the next government is always a reaction to the previous one. This policy will not last. As Winston Churchill said, Americans will eventually make the right choice after they have tried all their options. We are now experimenting with all options for doing the right thing. Ultimately, we will regain leadership and once again lead this innovation.

Lau: Your next step is to write a book. Surprisingly! Chris is writing a book. 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 writing it, and like your first book, it's really a reference guide, and it should be for a lot of people. What do you think are the most critical questions for the next step that will have an impact on the evolutionary path we are taking?

Giancarlo: Thank you very much. I'm writing this book with Jim Harper, a scholar at the American Enterprise Institute. What we're looking at is the clear trajectory of where digital currencies are leading us, leading us to massive, single digital currency platforms. They will be very efficient, like Amazon, and people will quickly get used to and adopt them because of efficiency, but they will be huge information honeypots. We need to be very concerned about our right to privacy and our ability to maintain our anonymity in these systems, and really focus on censorship in these systems, whether it's sovereign or non-sovereign, it doesn't matter.