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U.S. Needs to Modernize with Blockchain and Cryptocurrencies, Said Former Trading Commission Chairman

Christopher Giancarlo said U.S. falling behind China on new wave of innovation, driven by blockchain and cryptocurrencies.

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Christopher Giancarlo speaking during the panel hosted by the American Enterprise Institute Tuesday

WASHINGTON, January 4, 2022 – A former chairman of the U.S. Commodity Futures Trading Commission said the federal government needs to catch up and modernize the currency system to include cryptocurrencies, lest the U.S. fall behind competitors in the global arena.

Christopher Giancarlo, staunch supporter of cryptocurrencies and adjacent technologies, said during a panel hosted by the American Enterprise Institute Tuesday that, while some entities in the private sector are blazing ahead on cryptocurrencies and the decentralized ledger system called the blockchain — exploring the possibilities and limits to these technologies — western governments and societies at large are lagging.

“Money is changing right before our eyes,” the former chairman said. “Like text messages and photographs, money is becoming digital, decentralized, tokenized and borderless.”

Antiquated methods of transferring and ordering money are still mainstream, and not suitable for the fast-paced transactions that take place in the 21st century, said Giancarlo. He argued that these methods put the U.S. “at a competitive disadvantage to the likes of China, that are building new financial infrastructure from scratch with 21st century digital technology.

“It typically takes days in the United States to settle and clear retail bank transfers, while in many other countries it takes mere minutes if not seconds. And it takes days to settle securities transactions, and it’s ridiculously expensive to remit money overseas,” said Giancarlo. “It is often faster to move money around the globe by stuffing cash in a suitcase and hopping on a plane than it is to send a wire transfer.

“I just rode the Acela from Newark to Washington and the state of our dilapidated American infrastructure is on full display right outside the train window,” he said. “But sadly, the same is true about much of our financial infrastructure, both in the United States and in developed western economies.”

Innovation on the internet comes in waves, said Giancarlo. The first wave was the “Internet of Information,” which gave rise to digitally accessible and nearly instantaneously shareable libraries, such as Wikipedia. The second wave is what is commonly referred to as the “Internet of Things,” where nearly every device one can engage with can be accessed via the internet.

The ‘Internet of Value’

In Giancarlo’s view, a third wave is now in the midst of crashing down: the “Internet of Value” has begun to wash across the internet, where property titles, contracts, stock certificates, and other fungible and non-fungible assets can be shared and exchanged.

“Thanks to stablecoins, value is now transferable around the world in nanoseconds – 24/7/365 – the way that is increasingly decoupled from the traditional bank account-based system and corresponding correspondent banking service,” he said. “And it is the private sector, not the official sector that is leading the way to the future of money.”

Giancarlo condemned the U.S. government’s inability to “declare any national imperative to harness digital asset innovation to upgrade our creaky exclusive financial system to expand inclusiveness and lower costs for new generations of Americans.”

“I believe we can harness this wave of innovation this internet of value for greater financial inclusion, capital and operational efficiency and economic growth for generations to come. But if we do not act, this coming wave of the internet will lay bare in the shortcomings of our aged, analog financial systems with potentially disruptive impact on our western economies.”

Giancarlo stated that 80 percent of the world’s central banks are currently considering a central bank for digital currency. Bearing that in mind, he provided seven core reasons why they are doing so:

  • access to citizens economic data
  • financial infrastructure modernization
  • financial inclusion solution monetary policy execution
  • rising success of stable coins
  • geopolitical influence

He said that over the coming decades, there will be myriad stakeholders attempting to advance digital currencies – ranging from national governments, to legacy fintech institutions, to Big Tech – but that “citizens for a free society” need to be one of the key players.

“Looking back on the carnage of World War One, French premier George Clemenceau is said to have remarked, ‘war is too important to be left to the generals,’” Giancarlo said. “I adapt Clemenceau’s famous quote: money, especially the digital money of the future, is too important to be left to central bankers.”

Giancarlo stated that it is important for both non-sovereign and sovereign currencies to coexist in the same financial ecosystem. “The best protection against impermissible government surveillance of economic activity or restrictions on otherwise lawful transactions may be robust competition from well-constructed stable coins, and other non-sovereign digital money.

“On the other hand, privately held operators of stable coins are not bound by the Fourth Amendment to respect individual privacy. They can easily be brought under political pressure to surveil or restrict politically incorrect transactions.

“Perhaps the best approach is what I call a ‘jigsaw’ approach to privacy, where no entity or provider of the digital currency has all the information about a transaction.”

He argued that such a system would be “the most effective guarantor of economic liberty and individual privacy.”

Blockchain

U.S. Must At Least Be ‘Fast Followers’ On Digital Currency, Panel Hears

Panelists discussed the benefits of a digital currency backed by the Federal Reserve.

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Dante Disparte, the chief strategy officer at digital financial services company Circle

WASHINGTON, May 24, 2022 – Industry and a House representative pushed the benefits of a central bank digital currency on Thursday, arguing that the regulated coin would help reduce banking costs and bring those who otherwise don’t use banks into the financial system.

Rep. Jim Himes, D-Conn., told an event hosted by the Center for Strategies and International Studies, that the digital coin, backed by other currencies, would bring in people who don’t use the banking system, which are about 5.4 percent of American households, according to the Federal Deposit Insurance Corporation. Roughly three times as many more are “underbanked,” referring to those who engage in costly nonbank services such as check cashing, money orders, payday lenders and international remittance services, the data show.

Himes, who said the U.S. is late to the digital currency game, added that by enabling these Americans to access this new digital system, this would lower prices for remittances and foster financial inclusion.

Separately, high-powered law firm Skadden, Arps, Slate, Meagher and Flom explained in a recent memo that a CBDC could provide “safer, faster and cheaper payments.”

Dante Disparte, the chief strategy officer and head of global policy at digital financial services company Circle, said for countries that depend on foreign remittances, this is a pathway for accelerating currency receipts and increasing settlements.

Digital currency an international race

“We are seeing things we could not do with our money as compared to if our money stayed in physical or analog form,” said Disparte, adding on the international front, this is akin to the “space race.”

A panel at an event hosted by the Center for Strategic and International Studies said earlier this month that the U.S. was falling behind China, a technology powerhouse, on the digital currency front.

“We don’t need to win every technological race out there, but we need to at least be fast followers,” said Himes. “Let us not find ourselves left behind on the innovation this could provide.” Disparte agreed with Himes that the U.S. is late to the game, but added his caution to the Federal Reserve’s cautionary approach in April to develop a potential CBDC for the U.S.

“Better get it right than to get it first or fast,” Disparte said.

Himes said his ‘elevator pitch for a CBDC rests on the benefits the digital dollar provides for innovation. In the United States’ potential development of a CBDC, the framework or result will not satisfy everyone, but it will be a platform of innovation.

Disparte added that digital dollar currencies such as “blockchain and stable coin will change the world when people start to think of it less as a digital challenge to the dollar and to the U.S. banking system, but rather as foundational technology” for U.S. innovation.

Editor’s note: A prior version of this story referenced a report by the law firm of Skadden Arps and said that the report had argued that a CBDC would allow for “safer, faster and cheaper payments.” The article has been revised to clarify that the Skadden report was not mentioned at the CSIS event, and to note that the the firm explained that a CBDC could allow for such “safer, faster and cheaper payments.”

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Finance Experts Weigh Merging Regulatory Agencies to Tackle Cryptocurrencies

‘A lot of regulatory gaps exist because we have two regulators.’

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Photo of Dawn Stump of CFTC’s Global Markets Advisory Committee from September 2019

WASHINGTON, May 19, 2022 – Crypto market observers are calling for a change in the regulatory system and laws to tackle the quickly growing world of digital currencies.

“We will need new substantial law,” Douglas Elliott, financial regulation expert and partner at consulting firm Oliver Wyman, said on a panel hosted by the Federalist Society on Tuesday. “There are too many ambiguities” with the current regulatory system, he added.

As state and federal governments consider how the growing crypto industry should be regulated, various crypto experts further argued Tuesday for a redesign of the regulatory structure, while others said there was no need for a consolidation of agencies.

Part of the reasoning behind the consolidation is confusion about whether cryptocurrencies are commodities or securities. As such, some are recommending a merger between the Securities and Exchange Commission and the Commodity Futures Trading Commission to handle the regulation of the digital money.

“A lot of regulatory gaps exist because we have two regulators,” said Michael Piwowar, executive director at the Milken Institute Center for Financial Markets, suggesting that Congress merge the two into a single regulatory body.

Thomas Vartanian, executive director at the Financial Technology and Cybersecurity Center, backed the agency merger idea. Vartanian explained that despite the existence of cryptocurrencies for fourteen years, crypto remains largely unregulated.

“Bottom line is we’ve built a business of ten trillion dollars with no regulation and that is a financial risk,” Vartanian said. “We are building a financial time bomb.”

But Dawn Stump, former commissioner of the CFTC, said the best way to address these gaps in crypto regulation is not to redesign the regulatory system.

In August 2021, Stump said in a public statement that due to public misunderstanding about the CFTC’s regulatory oversight authority, “there has often been a grossly inaccurate oversimplification offered which suggests these are either securities regulated by the Securities and Exchange Commission or commodities regulated by the Commodity Futures Trading Commission.”

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U.S. Facing Pressure from China as Digital Currency Adoption Debate Continues

Experts expressed concern about the U.S. falling behind China on the development of a central bank digital currency.

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Photo of Stephanie Segal from CSIS

WASHINGTON, May 12, 2022 – The U.S. is falling behind China as the central bank ponders whether to adopt a digital currency, according to observers.

“If other countries are innovating in a direction that could represent a technological advantage, and the US is not prepared to meet that challenge, the U.S. will be at a disadvantage,” said Stephanie Segal, senior associate of the economics program at the Center for Strategic and International Studies. She and other panelists were speaking at a CSIS event on Thursday.

Segal’s comments were supported by her colleagues at the center, which hosted panelists to discuss the promises and pitfalls of creating a central bank digital currency. These stablecoins, as their called, are backed by other currencies, including fiat money.

Matthew Goodman, senior vice president for economics at CSIS, noted there is a lot of uncertainty surrounding this debate on the digital dollar. While there has been interest in the U.S. for developing such a currency system, Goodman said the US is relatively “behind” and delayed in conversations about CBDC compared to countries like China.

According to Fariborz Ghadar, scholar and senior advisor at CSIS, developing a CBDC is no easy fix, and is a risky step. However the concern about China having already developed a CBDC is a “major triggering point” he said.

Steven Kamin, senior fellow at the American Enterprise Institute, called China’s development of CBDCs “nearly operational” and potentially problematic for the U.S., with China as a world leader in technology. Kamin was speaking at an AEI event in April.

Risks of such a digital currency

A CBDC has upsides, but also presents risks to privacy and cybersecurity, according to Segal. She said a CBDC could create fear about data collection methods, regarding who has access to the data, and wonders if privacy protections would be provided.

Additionally, instead of having various intermediary points of security with the current banking system, a central bank digital currency would only have one point of security, making cybersecurity more vulnerable to threats, according to Segal.

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