Chris Giancarlo: digital dollar technology is coming ‘fast and furious.’ Can US seize the CBDC momentum?

Money is part of a nation’s financial infrastructure, and the dollar needs a digital upgrade for this changing world, says Giancarlo, former CFTC chair who now heads the Digital Dollar Project, in an exclusive interview with Forkast.News.

Technological change is coming fast to the world of finance following the coronavirus crisis, and U.S. policy makers need to prepare for the future with a digital dollar, according to Christopher Giancarlo, head of The Digital Dollar Foundation, which released a white paper yesterday that lays out a vision and path for an American central bank digital currency (CBDC).

"Out of the [coronavirus] crisis, you're going to see a huge boost of energy for the digitization of a lot of our financial market infrastructure... it's coming fast and furious — let's grab hold of it and harness it to address these shortcomings and prepare us for the future," said Giancarlo in a video interview with Forkast.News Editor-in-Chief Angie Lau.

As China an other countries race to put out the world's first central bank digital currency, the U.S. dollar has a lot to lose — including its global influence and the spread of American democratic values — if it does not develop its own digital dollar, said Giancarlo, the former chairman of the U.S. Commodity Futures Trading Commission.

"The United States needs to be involved now if we have an expectation that our values will be built into future money," Giancarlo said. "Now's the time to get into the debate over the future of money and make sure those values, not just privacy, but values of free enterprise, of free speech, of democracy are built into the future of money."

Highlights

  • The monetary system as national infrastructure: "Just as so much of our physical infrastructure in the West, our bridges and our airports and our mass transportation systems that were once state of the art have been allowed to age and decay and not be updated, the same is true about a lot of our financial market infrastructure."
  • The so-called CBDC "race" between countries: "I would push back against the characterization of this as a race. In fact, I think it would be a mistake for the United States, which has everything to lose because it is the world's predominant, if not only reserve currency, has everything to lose by going too fast and getting this wrong."
  • Digital dollar and American values: The winner [of a CBDC race is] the society and the economy that successfully brings their values to bear on the future of money. And the United States, we traditionally brought notions of a zone of privacy in one's transactions, free of state surveillance, of the rule of law, notions of free enterprise. If the United States brings those values to bear in the future of digital money, the United States is a winner. If it does not, and other values are brought to bear and the United States is not active in countering that, then the United States is a loser."
  • CBDCs and the unbanked: "When you start now going into the 25% of the U.S. society that are under-banked, that have limited or no access to bank facilities, a digital dollar could be the basis for them actually being able to make daily payments in daily life, or having to go pay 6-8% to a check cashing center to cash a check. So it could provide real value there."
  • Where American allies stand on the digital dollar: "It's interesting, a lot of our overseas allies and economic cooperation, partners want to see the United States involved in this game because it's critically important that a U.S. CBDC be interoperable with the euro CBDC or with a pound sterling CBDC. So if the United States comes late to the game, it's a disrupting influence. They want us involved in the game now."
  • If the dollar stays the same: "In London in the 1920s most Britons said, 'pound sterling is the currency of the world, what's ever going to change?' Well, it changed a lot in the late part of the 20th century... The same could happen to the dollar."

"Many of the world's key units of value are themselves measured in the U.S. dollar," Giancarlo said. And as those units of value go through a process of becoming decentralized, tokenized and programmable, how long can the dollar remain a global reserve currency if it can't interact with these digital things in a digital format?"

The following is a transcript of this Forkast.News interview.

See related article: Digital dollar advocates lay out path to a US CBDC

Full Transcript

Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into blockchain and emerging technologies that shape our world at the intersection of business, politics and economy. I'm Forkast.News Editor-in-Chief Angie Lau, It's exactly what we cover right here on Forkast.News, and it is my pleasure right now to introduce to you Chris Giancarlo, our guest for this show.

He is the head of the Digital Dollar Foundation. And today, the Digital Dollar Foundation just released its white paper on the digital dollar, which is the U.S.-backed, central bank-backed digital currency initiative. Chris Giancarlo, you may know him also as the former chairman of the CFTC. So indeed, we are very pleased to welcome you on the show, Chris. It's a pleasure.

Christopher Giancarlo: Thank you very much. And it's great to be with you.

Lau: Thank you. Tell us a little bit more about the Digital Dollar Project. You just released the white paper. It's really the first time that we're understanding the architecture that you're proposing for a U.S.-led central bank-backed digital currency. Why are you proposing this initiative?

Giancarlo: I'm so glad you used the phrase architecture, because that's really what this is about. It's about the architecture of money. I spent five years serving at the U.S. Commodity Futures Trading Commission (CFTC). And during that time, I got to work with a lot of the world's premier regulatory bodies overseeing a global economy. And I had a number of observations during that experience.

Just as so much of our physical infrastructure in the West, our bridges and our airports and our mass transportation systems that were once state of the art have been allowed to age and decay and not be updated, in some cases are almost obsolete, the same is true about a lot of our financial market infrastructure. A lot of our systems, our financial systems are based on an accounts-based system that itself goes back several centuries and some of the rails, the systems, including some of the financial framework, regulatory frameworks themselves, have become somewhat obsolete.

I say that at a time when we're going through a new wave of the internet. The first wave of the internet was about the internet of information. But this wave is about the internet of value. And it's going to change a lot of things about how we think about everything from the very commodities that we dealt with at the CFTC to financial instruments on the back of those commodities, as well as land records, as well as all types of units of value. And interestingly, many of the world's key units of value are themselves measured in the U.S. dollar. And as those units of value go through a process of becoming decentralized, tokenized and programmable, how long can the dollar remain a global reserve currency if it can't interact with these digital things in a digital format?

That's what got me thinking as I stood down from the commission after my five-year term was up. I started thinking about this coming wave, and in addition to the Digital Dollar Project, I'm doing a number of other projects, all having to do with other aspects of this technological innovation. But at the core, there's nothing more central to all of the global economy, the U.S. economy, than the dollar itself.

And so early this year, along with the Daniel Gorfine, who had served as the first chief information officer at the CFTC, and my brother Charlie Giancarlo, who's a veteran Silicon Valley engineer and entrepreneur and the CEO of a publicly traded company, we formed the Digital Dollar Foundation. We are three people that have benefited from the dollar's role in the global economy. And we felt that as a public service, we wanted to work on helping to serve as a catalyst for thinking about moving into a digital format.

Lau: I was just going to say, forgive the effusiveness, but it is really powerful to have public thinking and experience with private enterprise experience to actually come together. It's a combination in a formula we've seen successfully implemented not only in America, and it could be argued the ability to do so at this moment, especially when it comes to cryptocurrency or blockchain thinking. But also what we're seeing around the world and especially in Asia. But the team, I think, is really important.

Giancarlo: You're absolutely right. The U.S. has no monopoly on the use of public-private partnerships for projects. But I would say whenever the U.S. does big projects such as the space program or building the internet, it always does them through big public-private partnerships with a series of them.

In fact, it's interesting you and I are speaking here now within hours of the launch of SpaceX that's going to explore outer space. And it's a series of public-private partnerships. We're talking about exploring cyberspace with the notion of a U.S. central bank digital currency. And we also think it should be done in a series of public-private partnerships. So you're absolutely right. And that's what we're seeking to do with the Digital Dollar Project.

Lau: We often talk about the strength of the U.S. dollar from the perspective of value, of monetary value. But I think increasingly, as you've pointed out very accurately, is the value of the U.S. dollar as a vehicle of value. And really, that seems to be in question now. What we're monitoring over at Forkast.News from our Asia perspective, is clearly what China has really accelerated in this space.

Their digital currency, electronic payment, DCEP. But essentially, it's the same thing. It's a central bank-backed, People's Bank of China digital currency. It's been in the works for years. It accelerated, one could argue, after the announcement of Libra. We are observing at the moment some real time tests and trials in a handful of Chinese cities across the country. China is right now at what stage vs. what you would say or characterize the stage in which the U.S. is right now if you were to define this as a race?

Giancarlo: China has everything to gain and little to lose by this nationwide experiment that it's undergoing with its central bank digital currency. And I commend them for doing that and for marshalling the national resources to be able do that. However, I would push back against the characterization of this as a race. In fact, I think it would be a mistake for the United States, which has everything to lose because it is the world's predominant, if not only reserve currency, has everything to lose by going too fast and getting this wrong.

And I posit to you, Angie, that the winner of this is not who finishes first and the loser of this is actually not who finishes last. Thinking about this in a time dimension is, I think, the wrong way to analyze it. The winner is the society and the economy that successfully brings their values to bear on the future of money. And the United States, we traditionally brought notions of a zone of privacy in one's transactions, free of state surveillance, of the rule of law, notions of free enterprise.

If the United States brings those values to bear in the future of digital money, the United States is a winner. If it does not, and other values are brought to bear and the United States is not active in countering that, then the United States is a loser. And to me, it's not a question of thinking about this in temporal time, but thinking about this as what values are brought to bear. And if you want to go to winners and losers, it's about bringing those values to bear for the United States that's what's driving our thinking on the digital dollar project.

Lau: The average person, why do they want a digital dollar? Why should they care about it? And at what cost do they have to bear to go digital?

Giancarlo: So the average person is a big concept, right. So if it's the average person for you and me, fully banked, access to traditional payment systems, we've got coins in our front pocket. We've got cash dollars in our side pocket. We've got credit cards and debit cards, on our mobile phone we have Zelle or Venmo.

For us, it just adds another optional choice, the ability to, say, make certain payments to a known vendor in retail that we may know well enough that we don't want to pay a fee to our credit card company. We want them to get 100 cents on the dollar and we want them to have immediacy. So in that case, the typical person probably sees this as just more optionality.

But when you start now going into the 25% of the U.S. society that are under-banked, that have limited or no access to bank facilities, a digital dollar could be the basis for them actually being able to make daily payments in daily life, or having to go pay 6-8% to a check cashing center to cash a check. So it could provide real value there.

Or to, again, this typical consumer, maybe it's an immigrant working in the U.S. economy that has a family home overseas that wants to send money home as easily as they send a photograph, but they can't. Instead, they've got to wait weeks. They've got to go through a remittance process that may cost them 7% to as much as 17% for the cost of doing that. So there's a lot of different uses for this in a global economy.

Lau: Politically, that's really interesting. I kind of want to point out that there is no doubt that you're going to be creating efficiencies for U.S. consumers or anybody who's using the U.S. dollar to transact either domestically or internationally. But you're also now closing down shop. You're asking for the government to step in to the role to create efficiencies where right now the private market has stepped in and there are hundreds of millions, if not billions of dollars at stake.

You've got these companies who are tax paying entities [paying] into the U.S. government. Politically, they're also funding the very politicians that are now going to be asked if we're going to adopt a digital dollar by the U.S. government to essentially eliminate this entire swath of industry, to create efficiencies for its citizens. It's truly idealistic. It's truly wonderful if we could achieve that, but is it realistic?

Giancarlo: We're not calling for the government to shut anybody down. So we're not calling for the creation of a digital dollar, and at the same time, we get rid of the account space bank system or to do away with fiat currency. And we believe that this should be done slowly over time iteratively.

And it will be the consumers who will decide which payment system they wish to use, not the federal government to dictate. It wasn't that long ago that to watch a movie on a Saturday night, one had to go to a Blockbuster to find a cassette tape to put into their TV. 

Lau: You're aging us now.

Giancarlo: Society chose to go in a different direction. The government [didn't want Blockbuster] shops to be shut down. This new form of money is not to the exclusion of old ways of doing things. We think society will make their own choice.

Lau: So it sounds like there's going to be instead of a two-tier system, we're going to have a three-tier system. Tell us how that's going to work.

Giancarlo: Well, not really a three-tier system. If you think about how cash gets into yours and my hands, the Federal Reserve makes the cash available to regional banks and to commercial banks, and then they distribute it onward to their customers or others who may patronize their ATM machines. Now, in return for the cash they distribute, they post reserves with the Federal Reserve system.

We're proposing the same thing. Digital dollars will be minted by the Federal Reserve, and distributed through the Federal Reserve banks and through the commercial banking system to customers or non customers, whoever may wish. They may receive it in the form of payment checks or for others it may go directly to their digital wallets. But the amount of tokenized money in circulation would be established by the federal government distributed through the traditional banking system.

Lau: As a former chairman of the CFTC, you have a lot of powerful friends in Washington. What has the response been? And probably, an equal number of people who sit on the other side. But what has the response been for the idea of the digital dollar?

Giancarlo: So actually, you know what's funny about the government, and you're right, I did spend a lot of time there and got to know a lot of fellow regulators, not just the United States, but abroad. Regulators are like ordinary people in that some of them are comfortable with technology and are early adopters. Others are technology laggards and come on real late, and the majority are in the center bell curve.

The notion of a central bank digital currency is one where there are a lot of proponents in Washington that are very strong, there are others that are not so strong and the broad majority are in the middle. What I think holds some of them back is simply the strength of the U.S. dollar. It's so prevalent, it's so easy to use. It's so available for their shopping in their downtown town, in Washington primarily there are 75% that are fully banked. And for them, they say, what's wrong with the system that we've been using for effectively, what, three centuries?

But everything changes, I'm sure, in London in the 1920s most Britons said, 'pound sterling is the currency of the world, what's ever going to change?' Well, it changed a lot in the late part of the 20th century. And I think the same could happen to the dollar. There's so many underpinnings to the dollar's strengths. I'm never the boy that cries wolf. This is something that is about the future. It's about what values we bring to bear. The dollar's strengths are manifold. And they'll be manifold for a long time to come.

But it's about; do we bring the values that have made the dollar so prominent into that next form of money? And I will tell you one thing. You can't stop technology. You can't say 'we like it the way it is, so just stop technology, don't come', because it's coming. And this change is going to happen. The question is, do we harness it? Do we bring our values to bear or do we watch it pass us by with values that we'll have to accept that others will bring to bear?

Lau: Well, that's in question right now. Paul Tudor Jones and others have been pounding on the fact that this excessive stimulus that we're seeing, characterized by some as excessive, characterized as others by absolutely being meaningful and necessary.

But at the end of the day, the monetary policy in question, you say that the digital dollar can serve like the U.S. dollar, but there's also going to be aspects that technology is going to provide the Federal Reserve, which is as a policy tool. Is that a good or bad thing? Is that being architected in the digital dollar? And how is it going to function again for the average person?

Giancarlo: You're absolutely right. Whenever you go from an analog system to a digital system, you have the opportunity for much greater precision and a much greater range of policy choices. A lot of our existing financial system now is analog based and therefore it's limited by the technology.

The reason we have two or three day settlement cycles in a lot of markets was limitations of the technology. The reason why the accounts-based system itself exists is because back in Venice in the 16th century, it was too hard to move money around. So you put it on account rather than travel around with it. And then bank to bank, they would record, 'oh, he's good for the money or she's good for the money, they've got it back in their bank in Venice.' The accounts-based system was based upon limitations of analog money.

As you go to a digital world, you have much more policy choices and much more precision. So why wouldn't we avail ourselves as the Fed becomes more and more important? And I don't want to put a value judgment on whether that's a good thing or a bad thing. But as it becomes more and more important in the economy, why would we not want to have more greater and more precise policy tools?

And we saw during the Covid crisis that suddenly the accounts-based system worked for many people, but it didn't work for a lot. And we're still sending checks to them in the middle of a crisis when they're locked at home and they can't go and cash them. So the limitations of the accounts based system revealed itself during the crisis. And what did people do? They said, was there a digital alternative? And yes, indeed, there could be a digital alternative. But we need to go about it carefully and thoughtfully to get there.

Lau: What are the conversations you're having right now with the Federal Reserve? What level are you at right now? Because the Federal Reserve and the government and the rest of us have to weigh in on this.

Giancarlo: We're at every level of conversation, both with the public sector and the private sector. I worked with most of the current administration heads during my time, serving on the Financial Stability Oversight Council. We're having conversations from top to bottom at every level, as well as at the regional Fed level. Some very good work being done in San Francisco and the Boston Fed. And we're in touch with those teams.

We're also in touch with a lot of leaders in the private sector. But we're also in touch with a lot of the work that's going on overseas, including at the Riksbank in Sweden and in Singapore and in Canada and others, and recently spoke with Sir John Cunliffe at the Bank of England, who's heading up their project over there and at the BIS. So we're having conversations every level.

It's interesting, a lot of our overseas allies and economic cooperation, partners want to see the United States involved in this game because it's critically important that a U.S. CBDC be interoperable with the euro CBDC or with a pound sterling CBDC. So if the United States comes late to the game, it's a disrupting influence. They want us involved in the game now.

Lau: How is Congress reacting to these conversations equally?

Giancarlo: Same thing with Congress. There's some early adopters, some late adopters, and the broad middle. We've had some very good conversations with a number of folks on both sides of the aisle. Both the House and the Senate who are very focused on this. And there's a lot of others who are not.

One of the great pleasures I had serving at the commission was to get to know a number of senators and congressmen and women who are very technology focused. And I've been able to continue that dialogue in connection with the notion of a U.S. central bank digital currency.

Lau: At the end of the day, you've got tens of millions of Americans right now who are desperately in need of those stimulus checks coming their way in a very effective and efficient manner, whether or not that's happening, is definitely what we're witnessing right now. It's very laggard. It's an analog system still.

And, sadly, we have examples from states who are asking for volunteers of COBOL programmers to try to revive their very archaic systems to try to meet these technology demands of today. Having said that, where is the digital dollar in this part of the conversation? Can the current situation with Covid actually speed up what you hope is adoption of the digital dollar?

Giancarlo: Absolutely, the Covid crisis revealed limitations in the existing system. As you mentioned, the search for COBOL programmers is actually a complete failure, those should have been replaced long ago. But unfortunately, in society, it takes a crisis sometimes to reveal the shortcomings and the need for change. But it also is a stimulus to change.

And so I think out of the crisis, you're going to see a huge boost of energy for the digitization of a lot of our financial market infrastructure, both because the shortcomings the old system reveals, the need for change has been what's been called for and the technology is there. That's the beauty of this new digital technology. It's coming fast and furious. Let's grab hold of it and harness it to address these shortcomings and prepare us for the future.

Lau: But I think you're right. As we started this conversation, the ideological values that are being held by different people around the world is coming to bear in technology. China's very specifically looking at CBDC and there's questions about privacy and tracking and other really increasingly concerning aspects of the use of technology to track every single transaction that its citizens make, whether or not it's advanced at that stage right now, no question, it's not there yet.

But ideologically, that is the system in which it is being petri-dished in versus the importance of establishing the ideological values that we hold to bear on the other end of this political spectrum. What is the danger if the United States doesn't take that lead?

Giancarlo: You nailed it Angie, I think that is the critical question. I won't put value judgments on it, I just want to give you a quick round-the-world tour. If you go to communist societies, whether it be China or otherwise, the expectation of individual privacy is low and the assumption of state surveillance is high.

If you go to, say, Europe, for example, Europeans have a real discomfort with commercial exploitation of their data. Hence, they've got a law called the GDPR which limits commercial exploitation data. But they've got a pretty high comfort level with state surveillance of data because GDPR doesn't restrict government observation of private data.

Coming to the United States, going back to the time of the revolution, the Americans were concerned about government invasion of privacy, which is why when they adopted the Bill of Rights, in the Fourth Amendment, they restricted the federal government's ability to invade their privacy. That is also reflected in most of the state constitutions as well. And yet, in a funny way, we Americans are actually pretty comfortable with commercial development of our data, i.e. Amazon, Facebook, etc., etc. And so each society has a different approach to privacy, has a different set of sensitivities to it. In the United States, we have evolved that.

Now, the man on the street may think that if you hold dollars, you have complete privacy. And if you're an accounts-based system, it may be limited. But the fact is, even with cash dollars, there is a balancing of privacy between that and law enforcement, which is why amounts over $10,000 are reported.

Here's the point to answer your question. If the United States is not involved in the development of digital money, then other values will be programmed in whether they are the values of communist states or whether it's Europe's sensitivity to commercial data but not government surveillance. The United States needs to be involved now if we have an expectation that our values will be built into future money.

If we're happy to say, you know what, we don't care anymore about our values, let money become the way it is, then let's stay the way we are. But if we care enough, then now's the time to get into the debate over the future of money and make sure those values, not just privacy, but values of free enterprise, of free speech, of democracy are built into the future of money.

Lau: The future of money is at stake. The role of the U.S. in defining the future of money is something that you are very keen on and leading these conversations. My concern is, I'll take my editorial hat off, but clearly through an editorial perspective, is that you're really disrupting commercial institutions with the digital dollar. There's nothing wrong with that, we're creating efficiencies all the time. But politically, that just makes that job a whole lot tougher for you.

Giancarlo: I actually don't think so, there will still be a need for credit card companies, people want 30 days-credit. They want purchase price protection. Still a big need for banks because digital dollars are not going to earn interest. It's only going to be as safe as you hold it in a wallet in the same way that people keep small amounts in cash, and large amounts in banks. I think people will do the same thing.

I think a lot of the infrastructure of the existing accounts based system remains in place. KYC, AML (know your customer, anti-money laundering) can move from a back-office loss leader function for a lot of facilities, actually to a front office, a fee for service function that could be brought on a white label service for a lot of wallets. I actually think it's an evolution, not a complete disruption.

But look, that's one of the things that we're good at in the United States, we tolerate a certain degree of creative destruction to move to the next technological age. And if we simply say we can't have any change in the system, well, then we'll become like a fossil. We have to move forward. We have to tolerate some degree of disruption. But I think in an innovative society, a creative destruction society, we should be able to manage this and manage it well.

Lau: Well, one thing that America doesn't lack is foresight and future thinking, and sometimes it's mired in the system, but certainly it can be led out of this intransigence sometimes that we see within the system. I think Covid has certainly woken the entire system, the entire globe up to seeing the value of digital disruption, truly the value of it. It's allowed us to proceed with business continuity in a way that we wouldn't have if we didn't have this technology in place.

Having said that, you've now published the white paper. Where do you see it going next? Policy wise, conversation wise? Are there tangible next steps that you need? What's the roadmap in which we can see the next step and potentially the reality of seeing a digital dollar in place?

Giancarlo: So the purpose of the white paper was to lay out what we call a champion model. We brought together a meeting advisory board of 30 world-leading experts in everything from privacy to AML/KYC, to central banking, to commercial banking, to national defense, to law enforcement. And we put a lot of thought into developing what we called a champion model, what we think is the best case for a U.S. CBDC. We've announced it, it's out there and we really want to get a good dialogue going in a broader sense.

What's so interesting is if we had had this conversation a year ago, I think the involvement would come from central bankers, maybe some commercial bankers and some crypto enthusiasts. But because of Covid, the whole conversation about digital currency has gone to a whole different level of people that are focused on consumer advocacy or concerned about the unbanked. And so it's a much deeper retail conversation.

So what we want to do is have a really broad, good conversation, test out that champion model, learn from some of the debate and see if maybe we can refine it. But then we've got to move to pilot programs. When the United States decided in the 1950s it was going to go to the moon, it took 10 years to get there in a series of programs called Mercury, Gemini, called the Apollo mission, each one built on the next and an iterative fashion. And you know what? They learned more from their failures than they actually learned from their successes. And that's the same approach we've got to take now.

We've got to learn from our successes, but also our failures. And we could see private programs in discrete projects, maybe in some of the Federal Reserve Banks, regional banks that are more rural, we could do some testing in maybe some rural areas or maybe in others we could do it in the inner city. We can look at payments, we can look at the retail side. We can look at the international remittance side. Let's test out each one. Let's learn. Let's try different technologies. Let's try different approaches.

With digital technology, we can do some real precise testing. And ultimately, over time, I think what the right model for a digital dollar should be will emerge from that, a digital dollar that is durable, that is long lasting and can serve in a global marketplace.

Lau: Describe what that first pilot test would look like. Just characterized by what we're seeing in China, which is an app that is being integrated with the Agricultural Bank of China. Some of its VIP testers are using this right now to do everything from retail banking to retail purchases in some spot cities across China.

Conceivably that would be how anyone would be using a central bank backed digital dollar, it would essentially be a digital wallet that... we live our lives on the mobile phone anyway, so might as well do it there. But in certainly a more seamless fashion. So in that way, what would you say would a pilot test in the United States look like?

Giancarlo: So what's so great about the fact that China is experimenting, Sweden's experimenting. There's so many experiments, Singapore... We can learn from what they're doing. Certainly some of their experiments might provide us with the basis for some of our own. And yet each currency is unique. The dollar is unique. And there are certain other elements of the dollar that we might have to test all by itself.

I think, just to paint a picture of what it might look like, let's say it's a typical June, Saturday afternoon, and you're gonna go out to do some shopping. Well, you might walk into a shop and as I said, in your front pocket, have some coins. The other pocket might have some cash dollars. In your physical wallet or your purse, you may have some debit cards. You may have a credit card, but you also may go to a vendor who you know very well you're very comfortable with and pay them directly in a direct virtual bearing instrument, the same way you pay in cash.

Now, that works in the analog, walking about world. Well, what about online? Right now when you shop online, fiat money may not apply, it is accounts based money only. Well, this will allow you to do transactions online as easily as you do in cash.

An example I use is, let's say there's a hard-working grandmother in Philadelphia who's got family back in the Philippines. She can receive a photo of her granddaughter on her 10th birthday by a text message instantaneously. She can text back to her granddaughter instantaneously and say happy birthday. But if she wants to send her  granddaughter $100, it'll take 10 days and cost her 7% to 17%. Why should she not be able to text that $100 back as easily as the photograph was texted to her? That's what we're talking about.

Lau: That's the point, when you are unbanked or under-banked or you're part of the lower income bracket, 17% is enormously detrimental. It cuts into the value of that transaction. It's enormous for a lot of people.

Giancarlo: Yes, and remember, when you're doing an overseas remittance, you're not transferring the full faith and credit the United States government. When that $100 arrives back in the Philippines, it's an obligation of some Philippines bank. If that bank were to go bust and disappear, the money's gone. There's no FDIC insurance for that money. It's not the dollar moving across the border. It's one person's bank in America telling another person's bank in the Philippines and maybe two banks in between to give somebody money. Well, maybe they do. Maybe they don't.

In a stable world, this accounts-based system has grown and grown and grown and it roughly works. But it's loaded with friction. It's very expensive. And we are not calling for displacing it overnight. This is equivalent to if you want to build a new mass transport system, you probably don't tear down the old one. You leave it running, but you build a new one alongside it using a newer technology. And that's what we're talking about.

Let's start building the new rails of the new technology. We don't tear down the old one, but let's build it because it's a public good to build that new system that not just our generation, but the next one and the next one will then say, 'God, my grandparents were so foresighted to build this new transportation system that I'm enjoying today.'

Lau: I got to leave you with this last question, though. It's still a central bank centralized system. This is the whole critique of the entire system in which a decentralized currency, a cryptocurrency, might actually be truly a third system, a parallel system that overcomes all of these issues. Do you see the digital dollar in competition with that? Do you see a coexistence? What's your forecast in the future there?

Giancarlo: I think the analogy in the digital world is the analogy in the analog world of sovereign money and gold. So sovereign money is the full faith and credit of a government. It is government-backed. It provides a superior means to gold for purchase. It is not subject to inflation. It's limited, etc.

I could see a world where you would have digital sovereign money, which would be backed by the central bank, would be there in a crisis, would serve all the functions of the great Walter Bagehot talked about in the Victorian era that a central bank should do. And yet say something like Bitcoin exists outside that system as a sort of a safe haven, perhaps as an entirely inflationary instrument, as an instrument for people who are uncomfortable with the role that the central bank plays in the system.

One of the things we're very careful to do in the digital dollar project is not express any value judgment on any other cryptocurrency, whether it be decentralized, DeFi like bitcoin or whether it be a commercial venture like Libra or some of the stable coins. We think it's for society to determine the value proposition of all of these instruments. And in fact, throughout most of human history, you've had sovereign instruments competing against commercial instruments side by side.

There's nothing unhealthy about that. We think the digital dollar has its own value proposition and we see it very much as a sovereign instrument in service of the central bank and in service to an organized society. But we don't call for the suppression in any way of bitcoin. We think they exist side by side. We think often have a complementary role. At other times, they may be seen as competing. There's nothing wrong with that.

In a sophisticated economy, we should be able to not just tolerate, but actually benefit from lots of instruments in circulation and a lot of choice. I'm very comfortable with the world's competition of ideas. We have to be comfortable with that if we're going to move forward.

Lau: It's important work, no doubt, and I am glad that whether or not you characterize it as a race, that the U.S. is in it thanks to the Digital Dollar Foundation. These are issues and ideas that at least must be thought about and innovated and worked on.

So I want to thank you so much, Chris Giancarlo, who's the head of the Digital Dollar Foundation and sharing your ideas on the Digital Dollar Project, for explaining it to the rest of us. And we wish you good luck in this journey. We'll be watching very closely and we'll be watching for those pilot programs to come out soon.

Giancarlo: Thank you. This was a lot of fun. Thank you for having me on.

Lau: Absolutely. And thank you, everyone, for joining us on Word on the Block, until the next time.