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

Source: Forkast

Translation by: hiiro, SevenUpDAO

According to Giancarlo, co-founder of the U.S. Digital Dollar Foundation, central bank digital currencies (CBDCs) are the future of money, and countries that resist innovation risk losing influence in the global financial arena. The foundation is a non-profit organization dedicated to researching and publicly discussing the advantages and challenges of central bank digital currencies.

In an interview with Forkast editor-in-chief Angie Lau, Giancarlo expressed disappointment at Washington's hostility towards cryptocurrencies. His comments were in response to the U.S. Securities and Exchange Commission's recent enforcement actions against cryptocurrencies.

Highlights of the Article

"Deer in headlights": We are a bit like a deer caught in headlights in the official sectors of the U.S. right now, because of these transformative and challenging new technologies. If you look at the potential revolution in payments, that is a threat to central bankers who have traditionally dominated and monopolized payments.

U.S. resistance to digitization: I feel disappointed—not confused, I understand that part. I feel disappointed by the hostility. Because if we don't see it as a threat to the dominance of the existing U.S. system, but rather as an opportunity to reset our financial system to make it more democratic, open, financially inclusive, and aligned with the rights to privacy in our constitutional principles, then it is a huge opportunity. I hope the U.S. does not resist it but becomes more open to it.

FTX is a Washington scandal: By the way, the FTX scandal is entirely a Washington scandal. Recently, I went to São Paulo, Brazil, I went to Europe, I went to Japan and spoke with financial regulators there. They are not overly focused on FTX. They are focused on the opportunities that this technology brings and how to further drive it to promote their own economic interests. We need to move beyond it. But after all, it is still Washington. It will cause a stir for some time.

The currency version of Amazon: We will have a currency version of Amazon, and the temptation for politicians to control, monitor, and potentially censor it will be equally great. Whether it is done by central banks or stablecoin operators, privacy issues exist. Whoever does it, whether by the central government or private actors.

Full Interview

Angie Lau: Digital currencies are the future of finance, and they are becoming increasingly important over time. However, as the U.S. government struggles with how to regulate and possibly embrace this new financial era, we are left with many topics to discuss. From the SEC's enforcement actions (which seem more hostile than embracing towards cryptocurrencies) to the exploration of a digital dollar. We will gain in-depth insights from industry-leading experts.

Welcome to Word on the Block, a series that delves into blockchain and the emerging technologies shaping our world at the intersection of business, politics, and economics. This is what we cover at Forkast.News. I am Forkast editor-in-chief Angie Lau.

Today, I sit down with an insider from Washington who has now become a true maverick, and I am very pleased to welcome him back to the show. He is unafraid to challenge the status quo and shake things up in the financial sector. Due to his forward-thinking approach to cryptocurrency regulation, he is known as the "father of cryptocurrency." He previously served as the chairman of the U.S. Commodity Futures Trading Commission (CFTC) and is now paving new paths in the digital currency space. Audience, I am very excited, as I said, let’s welcome Chris Giancarlo to Word on the Block.

Chris, it’s great to be with you today. Let’s dive right in. Are you ready?

Giancarlo: I’m ready. It’s great to be with you again. This isn’t our first rodeo, so it’s nice to gather again.

Lau: Indeed. We had a discussion for Forkast earlier because we saw the emergence of this industry. You were at the CFTC at the time and, as I mentioned, became a pioneer. Your book titled CryptoDad: The Fight for the Future of Money is a must-read. I love the title. It’s very accurate, isn’t it? It is a fight. It truly is a fight.

Giancarlo: It is indeed a fight. We think about technology, we think about other things, but this fight is really about values. Money carries values. Our financial system carries values—values of society, values of a free society, values of a closed society. The current fight is about what values? What values will the financial system, the banking system, and most importantly, the money of future digital currencies carry? That’s what this fight is all about. What are those values? Will they be values of personal privacy? Will they be values of economic freedom? Or will they be values of a closed society, values of control, censorship, and political power over economic choices? That’s what this fight is all about.

Lau: Today we are here, fighting for power to be decentralized to individuals and ultimately restoring what many see as power being returned to individuals from an economic perspective for the first time, and where the power lies. That’s the evolution we have seen over the past five years.

Why do we see such a significant divide in Washington right now? We have had five years to study this space, five years to learn, assess, and determine where we as a society collectively want to go. I don’t even want to frame it just within the U.S., but globally. But why, especially in Washington, do we see such a significant divide?

Giancarlo: It’s complex, but let me try to explain. The 20th century was a world of analog banking. The banking system that exists today was built over much of the last century and dominated by the U.S. Whether it’s our central bank as the central bank of central banks around the world, or our dollar as a reserve currency far exceeding any other currency—at least historically—whether it’s our banks becoming the kings of kings, the most powerful banks globally, all of this was solidified after the Dodd-Frank Act. In many ways, the Dodd-Frank Act was the last piece of the puzzle that solidified Washington’s important leadership role in our financial system. In many ways, the Dodd-Frank Act was a victory for Washington over Wall Street. If you think about what kind of power that gave Washington, what kind of power that gave the U.S., it is very significant and unprecedented in global history.

Now, a new technology threatens all of this. A new technology has emerged that decentralizes the centralizers. A technology that has the potential to restore control and resist inflationary pressures (caused by printing money). Therefore, it poses an incredible threat to the entire hierarchy.

I am not speaking solely from a libertarian perspective. The U.S. has historically benefited from this system, so it is understandable that as the leader of the old system, there is resistance to a new financial architecture, an internet-based financial architecture. Resistance, or at least confusion about it, is understandable. This confusion is particularly acute in the U.S. Why? Because it threatens the dominance of our existing system.

Other countries that have not enjoyed this dominance actually welcome this innovation because it may be a way for them to gain dominance and control themselves. So, we are now a bit like a deer caught in headlights in the U.S., at least in the official sectors, because of this transformative and challenging new technology. If you look at its potential revolutionary impact on payments, that is a threat to central banks that have traditionally dominated and monopolized payments—especially wholesale payments. If you look at how it counters the inflation caused by printing money, because at least in the case of Bitcoin, it is programmed scarcity. This is a rebuttal to the government’s profligacy with its own currency, and we have known this has been going on for decades.

By the way, this criticism involves both parties. Is it surprising that Washington does not welcome this innovation with the same enthusiasm as it did with the information age of the internet 30 years ago? It is not surprising that there is resistance or at least confusion about it.

What I want to say is that I feel disappointed by the hostility, not confused. Because if we don’t see it as a threat to the dominance of the existing U.S. system, but rather as an opportunity to reset our financial system to make it more democratic, open, financially inclusive, aligned with our constitutional principles of privacy rights, and reconsider the opportunities outside the scope of financial surveillance that has already occurred in the existing system, then it is a huge opportunity. I hope the U.S. can embrace it more openly rather than resist it.

Finally, I want to say one thing. Gandhi talked about social change, and he said, "First they ignore you, then they laugh at you, then they fight you, then you win."

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

But politically, Washington feels very embarrassed by FTX. This was the darling of the crypto industry, and they poured dollars into many campaigns, which is a real issue.

Do you think this has stirred discontent?

Giancarlo: Absolutely. It has stirred discontent. It has stirred a political scandal that always brings a lot of clicks and many newspaper articles. It has generated a lot of heat. Wherever there is heat, you will find people gathering around the campfire in Washington. But this does not shake the fundamental premise of cryptocurrency.

By the way, the FTX scandal is entirely a Washington scandal. I recently went to São Paulo, Brazil, I went to Europe, I went to Japan, and spoke with financial regulators there. They are not overly focused on FTX. They are focused on the opportunities that this technology brings and how to further drive it to promote their own economic interests. We need to move beyond it. But after all, it is still Washington. It will cause a stir for some time.

Lau: You are absolutely right. When we engage in global dialogue, they are not talking about Sam Bankman-Fried or FTX; they are talking about the latest innovations, ongoing protocols, where to invest, what projects they want to save, invest in, and promote, how they will capture market share, and how they will regulate. They are not fixated on the idea that we must find a way to overcome the 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 come back, Chris, I want to talk to you about central bank digital currencies (CBDCs), why we hear concerns about privacy, and why some regulators and policymakers want to ban the whole thing outright. So please stay tuned, audience. The next segment will be very hot.

Welcome back to Word on the Block. I am here with Chris Giancarlo. He is the father of cryptocurrency. He is fighting for the future of finance. That 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 this entity, tell us about the fight you foresee, and why you formed the foundation, as we are now talking about CBDCs.

Giancarlo: Today, over 130 countries worldwide are researching central bank digital currencies or CBDCs, with 50 countries in advanced stages of development. China has launched the digital yuan and has put it into over 240 million wallets. Europe has stated they will begin deploying a central bank digital euro in the coming years. The UK has indicated they will launch a digital pound by the end of this decade. So, all of this is developing very rapidly. Of the G20 countries, 19 are researching some form of sovereign currency. Whether the U.S. has a digital dollar is almost irrelevant because we will be dealing with sovereign digital currencies in the coming years.

We will have a currency version of Amazon, and the temptation for politicians to control, monitor, and potentially censor it will be equally great. Whether it is done by central banks or stablecoin operators, privacy issues apply. Whoever does it, whether by the central government or private actors.

Lau: How will people consider accepting a digital dollar when it infringes on their privacy? The big "P" word has become a struggle for personal rights.

First of all, your paper currency cannot be used in e-commerce. As we all move towards a digital world, this privacy essentially cannot be directly applied to the digital realm. Digital transactions leave a digital footprint.

The "P" word also needs to turn into the "C" word of censorship. We may not only be monitored but also censored.

In the digital world, your digital dollar or stablecoin could be shut down to execute certain transactions that the government does not want you to execute. Therefore, our concerns are not only about the privacy and censorship issues of central bank digital currencies but also about the same technology being applied, whether by the private sector or the public sector, whether sovereign or non-sovereign.

That is why we need to come together to reaffirm our First Amendment rights, reaffirm our Fourth Amendment rights, and demand that there be no methods of personal surveillance, regardless of whether the digital currency is operated by the government or the private sector.

However, if your activity patterns indicate reasonable suspicion of criminal behavior, monitoring that activity has a legitimate national interest. We must address this balance.

But I do want your audience to understand that if it is done by the private sector, there are no protections. The government will fully regulate stablecoin operators, and if they operate them themselves. In fact, if they do not operate them themselves, the practices affecting stablecoin operators may be easier. We need to ensure that any type of legislation in this new stablecoin legislation will write in the freedom from surveillance and censorship for future digital currencies, whether that digital currency is operated by central banks or private stablecoin operators.

Lau: Is this why tensions are rising now? You also mentioned something similar in your book, that money is too important to be left to central bankers. So, should the digital dollar be best protected by the Constitution and legal system rather than by people, institutions, and groups?

Giancarlo: Before we even get to the digital dollar, there are three things that are very unfavorable to the dollar's continued status as the world's primary reserve currency.

First and foremost is fiscal profligacy. Simply printing dollars to meet short-term needs, whether for Covid relief or infrastructure projects or anything else, the profligate spending and devaluation of our currency is the biggest threat facing the dollar.

The second, I believe, is the degree of financial surveillance that has become almost excessive. Since 9/11, it has completely lost proportion and reached unconstitutional levels.

I think the third factor undermining the dollar's continued ubiquity, frankly, is our unwillingness to modernize. FedNow, which is expected to be completed in the summer of 2023, should have been completed in 2013. Europe has had real-time currency payments for a long time.

Our credit cards only recently got contactless readers. Europe has had that for many years. We have relied on our advantages and have been unwilling to modernize. This is particularly evident as we consider tokenization and digitization.

The U.S. is lagging in trying to implement digital currencies, and the political response is to reject CBDCs.

It is unfortunate that this has become a political issue, but it is shortsighted. Our societal aversion to the digitization and modernization of the dollar will undermine the dollar as the rest of the world continues to advance this process.

Lau: That’s a great point. I hope you keep that thought in mind because when we come back, I want to ask you about the different positions of the SEC and CFTC in regulating digital currencies. I also want to know Chris Giancarlo's thoughts.

Everyone stay tuned. You are listening to Word on the Block.

Welcome back. You and I, Angie Lau, host of Word on the Block, are here with Chris Giancarlo.

I want to ask you about the SEC and CFTC. Hester Peirce recently published an article. Wow, what a blockbuster, openly opposing Gary Gensler. Then you, as a former chairman of the CFTC, are observing your former agency's practices in this space. But you have different commissioners within different agencies. We recently spoke with Commissioner Caroline Pham, who is very thoughtful about this space. But you have these different dialogues within different agencies and the overarching U.S. organization.

But there is too much disconnect. Even if they wanted to, how could they navigate this space? Over the past few years, we have repeatedly heard people wanting to get involved, and then they received Wells notices or enforcement actions.

Giancarlo: People easily personalize it as a personal vendetta because it’s easy to make things personal. But in fact, this is administrative policy. Administrative policy is to resist, undermine, and diminish crypto technology innovation within the U.S. as much as possible. Now, many may think that crypto is a harmful force, that it is evil, that it allows fraud and manipulation, and therefore they support administrative policies to undermine it. What we need to be clear about is that, right or wrong, this is administrative policy. It is executed by agencies.

I find that the CFTC and the SEC are actually not administrative agencies but independent agencies. Their responsibility is to report to Congress and the White House. But in fact, at least in the case of the SEC, it seems to be executing policies as an administrative agency. I think that is worth criticizing and is surprising.

In terms of the CFTC and SEC, the CFTC has historically been more open to innovation. The CFTC has a very interesting historical origin. The CFTC was established at the same time as the SEC but as a branch of the Department of Agriculture.

At that time, every derivative was based on some commodity produced from the land, whether it was wheat, soybeans, or oil, and was a hedge against price fluctuations of those commodities. The CFTC regulates the risk transfer market, while the SEC regulates the capital formation market.

But in the 1970s, the U.S. abandoned the gold standard for the dollar, and it became clear that countries using the dollar needed to hedge against currency fluctuations. To ensure the dollar's status as a reserve currency, deep and liquid markets were needed for this hedging. Therefore, the CFTC separated from the Department of Agriculture and became an independent agency responsible for regulating new derivatives based on global currencies and interest rate benchmarks. At that time, it was believed that the SEC's innovation mandate was insufficient to regulate these new products. So, the CFTC was given the innovation mandate.

Forty years later, the new products regulated by the CFTC far exceed those of any other financial market regulator in the world. In fact, thousands of new products have emerged under the CFTC's oversight because the DNA of an innovative regulatory agency has always been present.

The SEC has its strengths, focusing heavily on investor protection and consumer protection, and therefore tends to take a more cautious approach.

So, five years ago, the CFTC successfully launched the Bitcoin futures market, which remains liquid, transparent, well-regulated, and orderly to this day. Who would acknowledge that we have the most sophisticated controllable cryptocurrency market at home, but it is managed by the CFTC?

Meanwhile, the SEC has yet to establish any form of regulatory market for cryptocurrencies, which is indeed disappointing for many. Therefore, the DNA of these two agencies is different, and their operational methods are also different. The question now is not who will become the sole regulator of all cryptocurrencies.

If the CFTC is granted authority over the spot market, it would essentially restart a whole wave of activity because now you would have regulated Bitcoin and Ethereum spot markets, you would have derivatives markets, and the SEC would no longer have objections, at least not reasonable objections comparable to a Bitcoin ETF, which would allow traders to have a complete trading product, and I think this would benefit the resumption of market activity for digital commodities like Bitcoin and Ethereum.

Recently, I have been to Brazil, Europe, and Japan in the Far East. These countries are moving forward with strict laws, but they will provide rules for innovation. Once they do that, innovation will leave U.S. shores. It will go abroad, completely reversing the direction of the first wave of the internet 30 years ago—when everything came from the U.S. The future will come from elsewhere.

But let me tell you one thing. No government can last forever. I was the chairman of the CFTC. Today I am a former chairman. One day, our current chairman will also become a former chairman, 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 trying all the alternatives. We are now experimenting with all the options to do the right thing. Ultimately, we will regain leadership and lead this innovation once again.

Lau: You are writing a book next. Amazing! Chris is writing a book. I hope I haven’t revealed a surprise you didn’t want people to know. But I am very excited about it. It will be published next year. You are still in the writing process, just like your first book, which is actually a reference guide that should be for many. What do you think is the most critical issue moving forward that will impact the evolutionary path we are heading towards?

Giancarlo: Thank you very much. I am writing this book with Jim Harper, a scholar from the American Enterprise Institute. We are looking at the obvious trajectory that digital currencies will lead us to, which will lead us to a large-scale, single digital currency platform. They will be very efficient, just like Amazon, and people will quickly become accustomed to and adopt them for reasons of efficiency, but they will become huge information honeypots. We need to pay very close attention to our privacy rights and our ability to maintain our anonymity in these systems, and truly focus on the censorship within these systems, whether from sovereign states or non-sovereign entities, it doesn’t matter.