Central banks are pivoting toward digital currencies -- here's why

The U.S. nonprofit Digital Dollar Project is set to launch five pilot programs over the next year to test the potential uses of a U.S. central bank digital currency. Christopher Giancarlo, Former Chairman of the U.S. Commodity Futures Trading Commission, and David Treat, Global Blockchain Lead at Accenture, join Yahoo Finance Live to discuss.

Video Transcript

MYLES UDLAND: Let's turn our attention now to something that it wasn't a main feature of the meeting, but was kind of discussed in the background. And that is the future of cryptocurrencies, and more materially, how it relates to the way governments might think about handling their fiscal policy, their monetary policy, and what role central banks have in the creation of digital currencies. Joining us now to discuss is Christopher Giancarlo, the Former Chairman of the CFTC, and a Co-Founder of the Digital Dollar Foundation, David Treat, also joins us as well, Global Blockchain Lead at Accenture and Co-Director of the Digital Project Project. Yahoo Finance's Brian Cheung also stopping by for this conversation.

Thank you, guys, for stopping by. So Christopher, let's start with the news you guys are announcing today on helping to explore a pilot project for what a central bank digital currency might look like. And I guess, we should start with how you would define a central bank digital currency, based on the work you've done up to today.

CHRIS GIANCARLO: Well, so, as you probably know, over 80% of the world's major central banks are at work exploring central bank digital currency. That would be a digital currency that unlike, say, a stablecoin or other type of cryptocurrencies, bears the full faith and credit of the central governments. It's a digital form of fiat cash in many cases, although there are different variations of it. And there's exploration going on all around the world with China in the lead role, having already put it in the hands of millions of its population. But a lot of work being done in Europe as well.

What we're announcing is that we are going to conduct a series of pilot programs here in the United States to start generating some US-based empirical data for use by academic institutions, use by the public sector, use by the private sector, and really determine whether there's a future for a digital future for the US dollar as well.

BRIAN CHEUNG: Hey, it's Brian Cheung here. I want to direct this next question to David. Accenture obviously has a lot of contacts and many different types of industries, public and private. Who are you hoping to engage with this? Because we already know the Federal Reserve is doing their own research, at least in Boston, their Boston branch working with MIT, I believe, on kind of their own pilots. So who are you hoping to engage here? And also, why did you feel like you needed to supplement what the Federal Reserve is already doing?

DAVID TREAT: No, thanks for the question. When we actually formed our blockchain practice in 2015, our very first client was a central bank. We've been working-- we've now worked with the majority of the G20 central banks globally to-- on various stages of the journey and some even now in the production prototyping bill. So what's been-- what we're excited to do is bring that global experience working with the World Central banks to bear for the US progress and dialogue.

And as Chris set up, it's not just-- it's not important that the critically important work that the Fed and Treasury will do around creating a CBDC, but it's also critically important that the private sector use it and learning how they want to use it. Where are the valuable use cases? And so, being able to set up these pilots to be able to explore those use cases, Chris, on our behalf last summer, testified before Congress three times.

And as one of the-- resulting from that, we were asked to define nine pilot use cases that we've published and have shared. And that would be the starting point by which we'll bring together members of the DDP community, and both in existing and new, to be able to demonstrate the use cases where it's valuable, learn where it's not, and to share the insights and results with everyone.

And I guess, maybe the last thing I'll say is, it's-- the use cases range from the financial inclusion space to address the critical needs of the unbanked and underbanked. This won't be a panacea, but we see it as a valuable contribution to that particular problem, ranging all the way to the commercial bank infrastructure and core capital markets infrastructure, where there's work already underway to do programs like the direct exchange of tokenized assets versus tokenized cash or cross-border payments.

BRIAN CHEUNG: Well, there's an enormous amount--

CHRIS GIANCARLO: You know, Brian, since it's--

BRIAN CHEUNG: --of players that are involved in there. And I guess, maybe I just wanted to ping pong this over to Chris. I don't know if that-- maybe that's where you were going. But, you know, you're a regulator. You come from that world. You were former chair of the CFTC. Ultimately, though, it really matters what the Federal Reserve is doing on this because they're the ones that would be driving any sort of change to what is the world's Reserve currency. So have you gotten buy-in on what you're trying to do here from the Federal Reserve? Have you been engaging with them through this process?

CHRIS GIANCARLO: The answer is yes, Brian. Throughout-- from the very beginning when we launched this in January 2020, we've been very much forming and giving briefings and keeping the Fed apprised of everything we're doing and will continue to do that going forward. But, you know, Brian, since recorded history began, money has been as much a social construct, as it's been a government construct.

And if you look at any big technological innovation here in the United States, whether it's the exploration of outer space, whether it is the exploration of cyberspace, the US approaches all these big partnerships between the private sector and the public sector. It's remarkable that just in the last few days, SpaceX returned to Earth carrying NASA engineers and scientists. That partnership between the private sector and the public sector is the way we roll in the United States. It's the way we roll in democracies.

It's happening in France with the Banque de France doing pilots involving the private sector. And even Jerome Powell himself has been very vocal in saying that society's got a key role to play here. Pilots need to take place. So we really view us as being very complementary to what the Fed is doing. And as you know, that project in Boston, it's very deep in its work, but it's very narrowly focused on technology architecture.

And as David said, what's not being done and what needs to be done is to look at the sociological, the commercial, the practical implications of this. And that's where we think we can help at the Digital Dollar Project to do some of that experimentation. And everything we do, we will make publicly available for academia with the administration and, importantly, for the Fed and for Congress to look at this. So we hope to bring some US data to this global experimentation so that the debate here in the United States and the discussion can be better informed by real live and current US-based data.

JULIE HYMAN: Hey, Chris, it's Julie here. You were just talking about the practical applications. And as we're all discussing this, as you take a step back, I mean, isn't the US dollar largely already digital? I mean, how much of the flow that we see of dollars is actually in physical dollars? So, I guess, can you break it down for us? What is the real difference, the crux of the difference here?

CHRIS GIANCARLO: Yeah, so it's digital, and it's account based for in its form of a obligation of commercial banks to make good on their accounts-- that the accounts that you hold there. But that's not the same thing as the issuance by the Federal Reserve of their notes in digital form. As issued by the Federal Reserve, the dollars in your hand are analogue. You can't use them online. If you want to transact in e-commerce, you need bank-based account-based money. But what we're talking about is truly digital dollars that can be used in electronic digital transactions, but also in internet-based commerce. So it's really a combination of both digitization and bringing currency into the internet, into the internet 21st century.

BRIAN CHEUNG: And lastly, I want to direct this question to David. Based off of your conversation with the stakeholders so far-- I know it's early on in the project-- but what do you think is ultimately going to happen here? Because you've heard Fed officials like vice chairman Randy Quarles say he's kind of on the fence. He doesn't understand what the full use case might be for a digital dollar. Do you think that the Fed takes on the risk of making this big sea change with the world's Reserve currency, or do you think that there's some sort of hybrid approach here? What do you think is going to be the ultimate outcome?

DAVID TREAT: Looking at the progress globally, Chris mentioned the Bank of France. There's the Bank of England's made some announcements recently. Sweden's Riksbank is well underway. We see, again, the BIS report, the stat that you put up earlier is spot on, right? 80% of the world's central banks are on this journey. So there is a multi-year broad recognition that this technology has just a lot to offer as we modernize our global financial systems.

And so, what we expect is that and what's necessary is for us to get pilots going in the US context against the backdrop of our social values and needs and the laws and regulations and how we in our financial infrastructure. And so, what we expect is to learn a lot to inform how that should happen. We're not prejudging. But we are being-- informing the efforts by our global work and the work that's already well underway in the US context on the private market side, using the notion of a stablecoin as a stand-in for CBC and what it can actually do for our business ecosystems.

CHRIS GIANCARLO: And, Brian, can I just say that I think it would be a mistake to think that the internet won't do to money the same things it's done to communications. When was the last time you wrote a letter, as opposed to sent an email? What it did to photography, when was the last time you had a photograph developed, as opposed to just sent it somewhere as an-- when was the last time you listened to a cassette tape, as opposed to listen to an MP3 file or Spotify?

And in financial services, in a few years, we're going to ask yourself, when was the last time you wrote a check or visited a bank branch? The internet is going to do to things of value, especially money, the same thing it's done to all those other things. And it's important that the United States be in the same leadership role in the future of money that it was in the future of communications and it was in the future of space travel. And that's what we're advocating. It's not necessarily whether the US launches this, but the US has to be in front of the exploration.

MYLES UDLAND: We can always judge the interest that we have in a topic by how much Slack conversation happens as we're going here. And our Slack chat has been lit up over the last 10 minutes or so. Thank you both for jumping on here, Chris Giancarlo and David Treat, both with the Digital Dollar Project. Appreciate the time this morning, gentlemen. And we'll talk soon. Brian Cheung, thanks for stopping by.