US could pilot digital dollar quickly if project gets green light, says Accenture’s blockchain lead
The Digital Dollar Project offers a path forward for the US to create a central bank digital currency. But will the government accept private sector help?
To celebrate the end of 2020, here is a Forkast.News editors’ pick from our archives, content that still rings fresh, true and — in a world now measured in nanoseconds — timeless.
The United States could rapidly enter into pilots of a central bank digital currency once the project is launched, said David Treat, senior managing director and global blockchain lead at Accenture and co-lead of the Digital Dollar Project.
"It would be easily conceivable that from the moment of go, within a couple of quarters, you could have real, working use cases in the real world with you and I with wallets on our phones, exchanging tokens in some sort of context," said Treat in a Forkast.News interview. "So a first pilot use case can be done in months and quarters; it doesn't take years and more."
The Digital Dollar Foundation recently released a white paper on its Digital Dollar Project that outlines recommendations on how to create an American central bank digital currency (CBDC).
Many major economies around the world are racing to digitize their currency because it could simplify the distribution of government cash aid as well as help central banks become more effective in carrying out monetary policies. Having a national digital currency is something that some observers believe the U.S. has been falling behind on, compared to rivals like China, which has already begun pilot testing an e-RMB in four cities.
When asked about this project during a U.S. House Financial Services Committee hearing, Federal Reserve Chair Jerome Powell was dismissive, saying he didn't believe the private sector should have a role in designing a digital currency.
But not everyone in the U.S. government is as anti-private sector as Powell when it comes to a future CBDC. Recently, Brian Brooks — the Acting Comptroller of the Currency for the U.S. Treasury — gave Accenture's outsized role in the Digital Dollar Project an implicit thumbs up when he said in an interview that he believed the more tech-savvy private sector would be better suited to build a digital currency, while the government's role should be to regulate it.
Here is Forkast.News Editor-in-Chief Angie Lau's interview with David Treat of Accenture and the Digital Dollar Project.
- On central banks considering digital currencies (CBDCs): "Every central bank is different and all of the G20 and the G40 will play differently because they're coming at it from different contexts, but the intensity level and the engagement is really quite pervasive at this point."
- Digital currencies in relation to fiat: "One of the key points is that this is not a panacea, and it's not going to replace all money, certainly not in the short term, and it's not going to be something that everyone is going to feel and touch and see."
- How CBDCs could transform remittances: "Rethinking what could be done as easily as texting that photo of your kid to mom or dad who is somewhere else, you could just as easily send that token in a single motion and transfer that value, that's the potential. So the cost of remittances could be brought way down."
- On the need to modernize money: "From any central bank's role and responsibilities around monetary and fiscal policy, the use of the currency, how it's used, where it's used, to modernize it and bring it into the digital age is very, very important."
"From the moment of go, if we're ready to pilot something, in effect, to do something real, something meaningful, something valuable," Treat said. "This technology has advanced to a state where really a lot of the complexity has been abstracted away by the platforms."
Angie Lau: Welcome to Word on the Block, the series that takes a deep dive into blockchain and emerging technologies that shape our world at the intersection of business, politics and economy. It's what we cover right here on Forkast.News. I'm your host and Editor-in-Chief of Forkast.News, Angie Lau.
It is a pleasure to introduce to you right now our next guest: David Treat, senior managing director and global blockchain lead at Accenture, and equally as importantly, co-lead of the Digital Dollar Project. We talked with Christopher Giancarlo last week, when the Digital Dollar Project launched its white paper, and got a really good sense of how this project is very politically important, why it's important to the American Federal Reserve System, the fiat system for American consumers.
But, David, I'd love to know from you, from a technical point of view, how this is actually going to function, not only for the average person, but at the Federal Reserve level and also for the banks.
David Treat: Thank you, Angie, for having me on again. It's nice to see you, and I'm very excited to talk about this project. Part of the excitement is that we've been working on this for years. Our very first project, as we started to build this blockchain business — as blockchain lived in our Applied Research function at Accenture labs and we recognized it was ready to be client-relevant and to build a business around it — one of our very first clients was a central bank, and we've been engaged with them ever since.
By necessity and by character they're very conservative, as they should be, because they run key aspects of our world's financial infrastructure and are key players, and being careful, considerate, and measured about how to implement is key.
Lau: Can we say who that central bank is? We know that you work with a lot of central banks, from the Bank of Canada to the Monetary Authority of Singapore to a lot of other key banks, but I think we can guess. Why was it important for central banks that at least have a little bit of that foresight to actually start thinking about [a central bank digital currency] in this perspective and in this space?
Treat: The financial services community overall was really the first to engage in this innovation wave and to recognize that out of Bitcoin and the cryptocurrency focus. Over the years growing up, certainly as we [had] 2008, 2010, into the 2010's, financial services moved first and fastest in terms of recognizing the potential of what tokenized value could mean for business processes and business flows.
So the banking system was engaged, and certainly central banks saw commercial banks and capital markets, infrastructure players, in particular, playing, and in as much as money's at the heart of all of that in these transactions, it was natural. It was a natural point of conversation to say that "there's a new innovation frontier, there's a new set of capabilities, and you need to pay attention and learn." And [the banks] were pulling. They knew that this was something important to engage with, and they've really been pulling in all sorts of stakeholders and experts to come up the learning curve.
Lau: That's really different, [that] they're pulling. So this central bank from, likely, the Asia part of the world is pulling this initiative along, and here with the Digital Dollar Project, which would be America's first central bank-backed digital currency, incredible initiative there, it's really being pushed. There is no direct pull from Congress and/or at a Federal Reserve level to pull this technology in. That's the difference that I'm hearing.
Treat: Every central bank is different and all of the G20 and the G40 will play differently because they're coming at it from different contexts, but the intensity level and the engagement is really quite pervasive at this point. So I wouldn't fully characterize it as just a push or even just a pull. There's been active dialogue, there's been active engagement, much of which will not be in the public domain, again, because of the conservative nature of the systems, the functions, the scope, and the groups that we're dealing with.
So it's never as clean as just push or pull, and yes, certainly some regions are pushing faster or pulling harder, but it's a mix. If I get back to your question, you asked a big question around, from the person on Main Street to the core commercial infrastructure, capital markets infrastructure, Fed, treasury level. I suppose one of the key points is that this is not a panacea, and it's not going to replace all money, certainly not in the short term, and it's not going to be something that everyone is going to feel and touch and see.
In many respects, actually, if we do it right, you'll never know that this is what was behind the scenes. In some cases you will, but that's where the big focus of the Digital Dollar Project is, around the specific use cases and where it has value and where it doesn't. I think that some of the biggest progress that we've made globally is in domestic faster payment capabilities and things that we may interact with every day, like Zelle or Venmo or Paypal, or our ability to just, with our bank, send money back and forth to each other seamlessly.
From an end user perspective, working with central bank digital currency, if we do it right, they shouldn't see a difference. It should be as easy for me to send you 10 bucks or vice versa. It should be relatively transparent. What is transformative is what happens behind the scenes. The gist of that direct token transfer being a single motion, a simpler exchange versus today, where it's me messaging my bank and you messaging your bank and our two banks messaging each other, and it's authorization-based and the like, a lot of what's going on is going to be behind the scenes.
Lau: So it almost sounds like beyond it being a digital dollar, you're also circumventing what some would argue is our archaic infrastructure, like a SWIFT, or CHIPS, or Fedwire. It would take on some of those characteristics and make it a little bit more frictionless. Is that what I'm hearing from you?
Treat: Circumventing is probably not the right word, because I think those core infrastructure players actually have a potentially huge role to play because, of course, these tokens have to move across a network. We have to be confident that they're secure. We have to have the operational capabilities to make sure that they're going to be safe and sound and their privacy preserved where it needs to be.
I've seen big engagement from the credit card players, the major messaging architecture players in the financial ecosystem — the recognition of how this gets implemented and the role that the existing players have in either standard setting or the rails upon which these tokens move or the ability to protect them all while they're in motion — all of that has lots of opportunity for lots of the existing players. It gets transformed, and if done right, we're going to strip out a ton of inefficiency and we're going to simplify and modernize architecture. But I wouldn't jump straight to circumventing and cutting players out because across the board.
I think one of the things we've learned over the past five or six years is while that initial mindset and mantra is good to inspire new thinking and to really be transformative — not incremental change, but transformative change — it's great to rethink what would be completely different. But oftentimes that throws the baby out with the bathwater in terms of the valuable roles that some of the intermediaries play.
And how do you rethink those roles? So I think intermediaries and the processes and the architectures change dramatically, but that doesn't mean we're starting from scratch, and that doesn't mean that there's not a role to play for the existing players. It always comes back to the middle.
Lau: You want to layer on and create efficiencies, I do hear that. Based on your experience with other central banks, what are the different possibilities and levers that it actually provides a central bank in a way that it doesn't now?
Treat: Again, one of the things that is important to realize is that the value pool and the value case is not for the central bank itself, it's for the ecosystem that it's providing a service to in many regards. Let's take diametric use cases from two ends of the spectrum. The U.S. Is the world's largest originator of remittance payments, and this is frequently people sending money to family or loved ones that they support in another country, in another context.
Those remittance payments, I think the latest World Bank figures that I looked at, on average, globally, [charge a] seven percent transaction fee; they can be upwards at the high teens; they can be in the 20s; they can be quite costly to the people. It's costly fees for people who can least afford it and who are trying to do some of the best good with it. The reality of what's driving those costs is not spurious cost, it's the messaging cost, to be able to have each of the legs of the transaction — the messaging, the reconciliation, the data confirmation, the operational teams — there's a rationale to the infrastructure that's needed to be able to support that.
Rethinking what could be done as easily as texting that photo of your kid to mom or dad who is somewhere else, you could just as easily send that token in a single motion and transfer that value, that's the potential. So the cost of remittances could be brought way down.
Lau: I get that part, but if you're asking this to be central bank-backed, what's in it for the central bank? What are the characteristics that would really make it attractive for the Federal Reserve to say, "this is what we want, we need to digitize the American dollar"?
Treat: So throughout history, the dominant reserve currency has been based on the most functional, useful currency. If you go back to the colonial era in the U.S., it was the Spanish Real for more than a century, up until the [Coinage] Act of 1857. It was based upon the fact that the Spanish real was the purest silver coin; it was lighter in weight; you could actually cut it into pieces (this is the origin of the notion of pieces of eight); it was functional. And so because people could trust it and it was functional, it was the world's dominant reserve currency for a long period of time.
As we think about the digital era that we have created and all of our progress for commerce and education and services and the like that we've created in the digital world, we've just not modernized money to match the digital world and all of that transformation. So the currency that can most quickly match the transformation we've done with everything else as it pertains to online and digital, the currency that is able to serve that digital world the best has the chance to be more widely used.
And so does that put the dollar at risk from a reserve currency perspective? Not in the short term, but maybe over time. If something else is more functional, it will gain attention. And so from any central bank's role and responsibilities around monetary and fiscal policy, the use of the currency, how it's used, where it's used, to modernize it and bring it into the digital age is very, very important.
Lau: Mark Carney, the then-outgoing governor of Bank of England right in America's backyard, in his last chapter in his role, called for global hegemony to be replaced by a digital currency — to essentially fix the global economic system that has been destabilized, as he and many would argue, at the strength of the U.S. dollar.
How does that contrast with this initiative here, the digital dollar initiative, the project to have a CBDC of the U.S. dollar? Is that threatened by potentially a globally-backed digital currency that would be then the global hegemonic currency for the world?
Treat: I'm not the right one to comment about global economic policy dimensions, so I will leave that aside. I think there's some really interesting policy, sovereign, cultural, and societal questions that are embedded in that concept. I think the thing that's incredibly encouraging is that the technology now affords us the ability to have those conversations and to challenge orthodoxies and rethink how the world works and lives.
So our focus is on the potential, and inspiring the right level of policy, social, and cultural discussions and dialogues to pick, "what do we choose and what do we value?"At the heart of it I'm looking forward to all of those debates and discussions. I think they are enormously complicated. As I'm sure Chris talked about, there's tremendous benefit that has been derived from being able to price things in a single currency and the relative nature of it.
I think the global interconnectivity/interoperability between financial systems is key and is clear. The notions of domestic versus global financial policy are deeply complicated. And again, I'm incredibly encouraged that the technological advances, I think, will bring those conversations to a head in the coming quarters and years, and we'll be able to make some different choices armed with a much greater potential. It'll be interesting to see how that plays out.
Lau: The reason why I ask that question is because Chris was very articulate in the specificity of the value of the digital dollar. At the end of the day, we're looking at a world we live in, an increasingly tense world. There's decoupling happening, there's U.S.-China trade tensions flaring up, and it boils down to the ideology of how you perceive money and how we perceive business and peer to peer interactions from a financial level.
What power does that give either a central bank or sovereign and/or us? And so whatever spectrum of the ideology you're on, it's very clear where America would sit on that. And so this would be baked into the architecture of this CBDC, the Digital Dollar Project. And so I wanted to ask you, when you take a look at the work that you're doing with other central banks, which are also ideologically aligned on the spectrum of free capital markets, very clear sense of privacy protection to certain degree, (Europe's definitely stronger than America) but certainly we all fall on the same side of the spectrum.
And so is there a consistency when you are looking at the white paper of how you've structured this CBDC for America? Does it complement the work that you're also equally doing with Europe and Asia?
Treat: Part of our excitement in participating in this, and part of the reason the (Digital Dollar Project) DDP came about was, discussions with Chris and a recognition of the role that we're playing globally with many of the G20 and G40 central banks. We were proud and motivated to bring that collective learning and insight to bear.
The U.S. dollar is the dominant reserve currency right now, so it would be odd to not have it play a central role in the modernization of money globally. What's important is that it be done, globally, and I think all central banks need to get there. I believe that this is the future and a necessary part of the evolution of money and currency. Every central bank will get there, and what's really important is that there's plenty of global dialogue around the interplay and the interoperability and the integration of our global financial systems in the mix.
And so to be able to connect the dots, to be able to help each individual country drive its own policy choices, which I think will be different in many cases; I think different values, different current states with respect to use of cash, with respect to the role that they play within global financial supply chains and ecosystems and systems, and to be able to have a consistency of open standards of interoperable systems, of common choices that will enable all of the financial infrastructure globally to advance together, even though different choices may be made in different countries and different regions, I think we should encourage that.
If it was all uniform and there was one system, only one, that would be obviously antithetical to true innovation, which comes out of diversity — diversity of thought, and implementation, and learning and the like. So we're going to continue to work with partners globally, work with different systems, bring the knowledge and understanding that we're developing as we look to and work with each of the different types of implementation that match those particular policy and social and cultural choices.
And so we're proud to bring that global thinking and global capability to bear in a U.S. context. Similarly, we're bringing back global thinking to other central banks and other regions around the world.
Lau: Do you think that regulators need to now jump in? This is really a private-led initiative. Accenture is, from a consultancy point of view, really working alongside central banks in this case here in the United States. It's leading, presenting, proposing. But at what point at a G20 level, at an OECD level, would the regulators come in and start really shaping the architecture as well?
Treat: I don't want to parrot Chris or repeat things he said, but it does play out differently in different regions, in different political environments, and so the U.S.' style of getting anything done is public private partnership. And so different from how it works in other regions of the world where maybe it's a regulatory framework first, and then private enterprise innovates to the framework, in the U.S. it's much more a history and tradition of a partnership between public commercial enterprise, innovation, regulatory, and public service focus.
I think that's valuable, that's the way that we've made the most progress in the quickest fashion here in the U.S. We anticipate the same thing happening here. So the intent of the white paper is to be able to engage with the stakeholder community, including key members of Congress and the Federal Reserve and Treasury and private enterprise and banking and consumer advocacy experts and the legal community, et cetera. So the engagement is already there. It's the ability to catalyze further discussion, to have common language, that I think is probably one of the most important things.
I think too frequently we talk past each other; when we're at the front end of an innovation wave, our language fails us sometimes, because we think we're saying the same things. We have heated debates about what we think is the same thing, only to realize that we were talking about wildly different things. So having a common language, having a forum to get the conversation going... I think the regulators are already involved. I think they're already having the dialogue, they're already in with the thinking, and I think it's just now about having more of it and quickly getting it to the stage of piloting, because that is also critically important.
There's only so far we can go with theory and paper and PowerPoint. We have to get to code and feel it, touch it, have it on your phone, learn from that experience in the real world in a very controlled, measured way. We've got to get there quickly so that we start to learn. You only learn by doing.
Lau: Absolutely. And so when do we see that?
Treat: I hope we see that very, very quickly. I think we've already seen it. I mean, in reality, if you look at what's been happening with many of the certainly core capital markets and banking infrastructure use cases, we've already been modelling the transformation by using an analog, whether it's a stablecoin or just merely tokenizing value in pilot use cases or pre production prototypes, we've already been building systems that are just waiting for the fiat central bank digital currency to be swapped in.
So if you look at the great efforts of the Utility Settlement Coin, now Fnality, JPM Coin, Project Jasper, Project Ubin, Project Ubin-Jasper as the culmination of two central banks actually directly exchanging a tokenized fiat currency for the first time between Canada and Singapore, there's a lot that's already started and underway around tokenization of value, tokenization of securities, the exchange of the two, so we are seeing it already. The exciting part is to now be able to swap in the actual CBDC token for what we've been using so far.
Lau: When might we see a Federal Reserve pilot [with] its own CBDC?
Treat: I hope very, very soon.
Lau: What does "soon" mean, a year, two years?
Treat: Let me try not to give you a non-answer. From the moment of go, if we're ready to pilot something, in effect, to do something real, something meaningful, something valuable, this technology has advanced to a state where really a lot of the complexity has been abstracted away by the platforms.
Our languages are getting better, we're getting faster, it's getting faster, more secure. It would be easily conceivable that from the moment of go, within a couple of quarters, you could have real, working use cases in the real world with you and I with wallets on our phones, exchanging tokens in some sort of context. So a first pilot use case can be done in months and quarters; it doesn't take years and more.
Lau: I understand; the technology is there. Everybody's ready to go. We've already seen test trials around the world, just not here. It just takes flicking on that switch. And that's really not a technology question, but certainly a political one. So I get that point. Before I let you go, David, this has been really illuminating, and thank you for helping us understand at least a little bit deeper.
But what has the response been from peers and the general public? And what do you think is the one thing that still needs to be stressed, that you'd like to push people over the line to understand a little bit better?
Treat: The response has been phenomenal. We've gotten just a huge influx of comments and feedback and people really appreciate the foundation of language and concept that's now going to better enable the conversations we have going forward. We continue to get feedback around it; we'll continue to build on it, but we're really happy in that it has already done what we wanted it to do in terms of inspiring conversation and giving us a common language to enable that conversation. So that's been fantastic.
In terms of what to expect next and what to add to it, I think it's the depth of the policy discussions and questions that is most needed and will be most in focus as to what comes next in terms of, just as an example, the balance between privacy and AML/KYC regulation. How you thread that needle, the excitement of our technical choices, and the ability to configure the technology to make it a both, not as much an either/or, is incredibly exciting. So to be able to have that policy discussion, to be able to show how that needle can be threaded so it can be a both, not or, I think is incredibly exciting.
Lau: And what kind of pressure does China, even Facebook, play on this project?
Treat: There's a global set of activity underway that is just raising the intensity level in a great way to be able to say this is important to focus on, this is important to do. And so I think the more countries, the more commercial activities that get underway and start to be successful, the better. Because we need that. We need to push that innovation frontier. We need to get there by learning — learn by doing, learn by experiencing. And so the more activity that gets underway, the better, the quicker we'll get there and the more informed we'll be as to how to do it right.
Lau: So what's the next breaking headline that you're going to share exclusively with us that we can expect soon?
Treat: It'll be fantastic, and I will call you first.
Lau: I have no doubt.
Treat: You'll have to wait. It's going to get me in trouble with my marketing [department].
Lau: Well, if it has anything to do with a pilot project, I think we're all going to be very interested to see how that rolls out. David Treat, thank you again for sharing definitely a lot more on the Digital Dollar Project. The white paper explains a lot, but I think we all know that the intensity of this conversation, as you've very notably remarked on, is increasing. It is increasing and let's see if America can play a significant role here. David, thank you for joining us.
Treat: Thanks, Angie. Appreciate it.
Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. I'm Angie Lau, Editor-in-Chief of Forkast.News. Until the next time.