Fireside Chat: Stablecoins, Digital Dollars and Regulation with Chris Giancarlo and William Mougayar

Transcript

[applause] Hello everybody. Great uh to see you again, Chris. You and I have known each other for more than 10 years. So I'm really looking forward to this conversation and I want to thank you for being here with us. So to start with uh let's start with a basic definition. What what is your viewpoint about the differences between stable coins, CBDC's and digital dollars. I'm using dollars as a as an example, but it's really any type of sovereign currency is now being

digitized. And I remember one time you you told me the differences. I I would like everybody to know the these nuances. I think it's a good baseline. >> Yeah. So, what I would say is digital dollars are is money referencing the dollar that is traveling on blockchains that's traveling on digital networks. And there are two types of issuers of that money. There can be a sovereign government, a central bank. In the case of the United States, it would be the Federal Reserve. But it could be the Treasury Department. Um that would be a central bank digital currency. It would be sovereign money or stable coins which are not which is not

sovereign money. It is digitallyworked money but but um generated by a private sector actor and in the sense that we already have that in the traditional system. Banks create money all the time but the money they create is not sovereign money. When there's a crisis, people go to the ATM machine and they do that because they want to convert the obligation of a private sector bank into a public sector sovereign. They want to convert their money from bank money to sovereign money. And so in in the hierarchy of quality of issuer, sovereign money is always considered ahead of private

money. But that doesn't mean there's a problem with private money. It just means that in a crisis you go to the highest creditw worthy uh issuer which would be government money. So central bank digital currency is sovereign issued money. Stable coins are private issued money and they're all dig in the case of dollars all digital dollars >> because you you had a project that you were leading called the digital dollar. Where is it at? >> Yeah. So the digital dollar project which I founded when I left u federal government service in in 2019. We launched it in January of 2020 is a private sector think tank devoted to the exploration of the US dollar as it goes into a

digitally future. And we exist to ask three questions. How do we futureproof the dollar for the coming world, the 21st century world of digital networks of value? How do we preserve its reserve currency status, which it's easy to argue has been good for Americans? I would argue it's been good for the entire world and it's something worth keeping. And thirdly, how do we make sure the dollar once digitized reflects the values of a free society for which the dollar has historically been known.

In a world where other sovereigns are using their sovereign currency to contra uh to create u social control as in the case of the digital yuan or or social surveillance in the case of of the digital euro. How do we make sure that whoever whoever digitizes the dollar, whether it's our government or stable coin operators, do so in a way that's consistent with traditional American freedoms, including the Fourth Amendment right to privacy in our in our transactions, including our financial transactions.

>> Yes, that's a great that's an important nuance. Uh one that seems to not be so top of mind in Europe. Well, well, so you know just generally Europeans are hyper sensitive about corporate surveillance but totally relaxed about government surveillance. Okay, they're totally relaxed. They're they're well recognized GDPR legislation allows for complete government surveillance. It just it just prevents against corporate surveillance. On the other hand, we Americans are hyper sensitive about government surveillance, but we're totally relaxed about corporate surveillance. You know, we

allow Amazon and all of our social media platforms to turn us into a product by monitoring everything we do. And here is and and ladies and gentlemen, here is the dirty little secret. Everybody says a US digital dollar CBDC will invade our privacy, but guess what? Stable coins do. The word privacy doesn't even well it does appear but it barely appears in the genius act and not in terms of protecting our privacy. Stable coins are no are not privacy protecting. In fact they are subject to the bank secrecy act which means they are subject to surveillance. So this notion that we can't have a CBDC because it will invade our privacy but we can have stable coins

because now that's not a knock on stable coins. I'm a huge believer in the power of stable coins. But on the issue of privacy, don't believe this notion that somehow your privacy is going to be protected if use a stable coin, but it won't be protected if you use a CBDC because our government has made sure that it's subject to the bank secrecy act. And the bank secrecy act is not about secrecy, it's about surveillance. >> Got it. Interesting. We're going to come back to that. Let's talk about risk. >> Yeah. Um there was a recent report by the BIS uh the bank uh for international settlements and they they haven't been known to be very pro blockchain in general but take it with a grain of salt. They said that they identified stable coin capital flows as a mechanism for capital flight that threatens

monetary stability in emerging and developing economies. They say it increases uh the the increasing flows in stable coins are associated with subsequent domestic currency depreciation deviations from covered interest parity and widening wedges between stable coin implied and official exchange rates in segmented markets. So a lot of FUD, a lot of fear, uncertainty and doubt they are throwing especially to emerging economies. They are scaring them. what is your viewpoint and and what's the reality check on this?

>> So, thank you for citing that report. I mean it they they specifically look at Nigeria, Turkey and Argentina uh for their evidence base that their argument is that stable coins will allow the citizens of those country to basically get off the monetary policy of their own central bank and their own government and move to the issuer of the stable coin which in this case would be the US dollar government. Well, all of those are failed currencies and they're failed monetary policies. Their people are going to find a way out of those systems anyway. All that stable coins do is just make it easier for that to do so.

>> Their biggest objection seems to be that these people are exercising their freedom to choose a better monetary policy and choose a better currency and escape the the the control of their local central bank. And me thinks that the reason why our European friends at the BIS are afraid of this is because it'll allow Europeans that might someday want to get out of the Euro zone to choose a superior currency and the loss of monetary policy. In their minds, central bank control over monetary policy is always a good even if they're lousing it up. And um in those countries, there's no question they're lousing it up. So as someone who's who

starts from first principles that democracy means individual freedom to choose our financial transactions and methodologies, I find their um argument actually gives away exactly what they're afraid of a loss of control and and and and freedom for their citizens. >> Yes, in a way I mean they are acquiescing to the fact that there is a problem for for these countries unfortunately. So talking about the Europeans again uh what you hinted at earlier um there seems to be uh some positive win that they they like the CBDC aspect. So the u Isabel Schneel, the European Central Bank board member,

uh she said that they see the the banks responding to stable coin risks with strong regulation and CBDC's. >> Yeah. >> Uh they claim it preserves the anchoring role of central bank money, which is what you said. I mean they like to preserve that. Uh and of course I mean here we we joke we we call CBDC's as central bank digital control >> control instrument. Yeah. >> So what do you think again? Let's expand a bit more on that.

>> You know look I'm my ancestry traces back to Europe. I've got tremendous ex uh respect for uh European research and science out of its universities and for European culture. But when it comes to technological innovation, whenever Europe fears the threat from the United States, they always respond with heavy regulatory controls and centralized action. And so it doesn't surprise me that they are very fearful of the threat of dollar-based stable coins um and very fearful of US dominance of the payment the global payment systems whether it be Visa, Mastercard or others. And so the reaction is, you know, it's it's the reaction quite frankly of the old Soviet

Union. Let's put walls up to keep people in and let's put walls up using um uh regulatory controls and their their upcoming digital euro um to to at least maintain central bank dominance um over the Euro zone. Now, I don't think as at least from what I understand and I've read about the coming digital euro, I don't think it's have a great deal of applicability outside the Euro zone, but it's meant to keep the control of Euro zone's financial system in the hands of the central banks and the commercial banks. That's their comfort zone. Yes.

So that that fear is real because the uh the Federal Reserve Governor Christopher Walker he said that the the global adoption of stable coins would extend the reach of US monetary policy to countries that use the digital token. uh do you think that is the case or if there is global adoption everywhere it kind of levels the playing field and everybody kind of moves up accordingly visav the USD because I know in in Canada where I I am u the genius act was a bit of a wakeup call and some people realized there that uh that's what's going to be more dominance of not just the USD but more dominance of stable

coin US dollars. Yeah, William, I've got a book coming out in October called The New Adventures of Crypto Dad. Uh, and I'm very excited about it. But in it, I talk about the what I call the fight for freedom in the 21st century. Currencies are going to fight for dominance in the 21st century. And ultimately, what they're going to offer in addition to the usual things of financial stability and greater utility will be a fight for values. If the values of the digital dollar future are one of financial privacy, balanced with law enforcement, of course, but if we get the values right, the dollar will be the aspirational currency that anybody with a smartphone

anywhere in the world will be able to upload with a swipe of their screen. And that's going to compete against currencies that are subject to currency controls, that are s subject to weak monetary policy or proflegate monetary policy. currencies are going to compete like never before. And this technology just makes that competition more efficient. It doesn't change the dynamics. You're still in a fight for which currency do you want to use because it gives you the right degree of financial stability of of of durability of transferability and ultimately privacy and economic freedom. Right? The 21st cent the 20th century a century of some of the most amazing marvels from

landing people on the moon to the internet was created with free money. There was no government saying let's let's direct money to Silicon Valley to create all the things that created. It was a a financial freedom one in which controlled societies really haven't yet comp. And and if the free freedom of money remains and you can upload it, anybody in the world can have it, then aspirational people the world over will choose those currencies that they wish to trade in that have not only the the the technological features but have those social features of a free society.

But so like is is the response um that countries should be adopting is is to have their own stable coin pegged to their own currency. I mean that that's kind of how I see it I think. >> Yeah. So I so first of all I think every major um economy is going to try to develop um some some form of digital money whether it's sovereign CBDC has in China or whether it's private sector initiated like we're doing in the United States. In fact, once aentic AI comes in, once we have micro commerce, right, analog money is going to seem is going to is going to be not useful, right? Not only are we going to um uh change the

whole way we gather information from, you know, our subscriptionbased model now to just paying by eyeball reviews of an article in micro pennies, charging our automo, our electric automobile as it goes down the highway in microwatts. um all kinds of new innovations that are not going to be able to be done with traditional bank money that are going to need to be done with digital stable coin money. So that's coming. Countries are going to allow you to pay your taxes in digital money. So there's going to be a need for a a digital yen. There's going to be a need for a digital euro. As I say, every country is going to go this way. And once they all go this way, the differentiating factor is going to be the values.

But I'm surprised like why why why haven't they done it uh already like the there's so much US dollar denominated stable coins out there. It it's it is dominating the space I would say more than the um uh the actual uh fiat segment. I mean you the euro should be should be doing it already. It should be. I was talking to a a gentleman from Croatia just as we were getting ready to come on and he says for any major payments he uses dollar-based stable coins. He doesn't use he uses the euro to go down to the local cafe and buy a coffee but other than that he use everything dollar based stable coins. I mean Europe's got to wake up that this is happening.

>> It's already Yeah. I mean the US lead is already there. So let's dive into the um use cases because we just touched on it. Um where do you think the the best use cases will be and and why don't we have more stable coin use cases? In my opinion, there aren't enough right now. Uh the stable coins is used a lot to park money to trade currency. Uh is it going to be used for retail payments? Is it going to be used for businessto business? Where where do you think it's going? Let's discuss. So, so one of the knocks on stable coins, right, is that you know the majority of it, 90 plus% is used for crypto transactions, right?

Guess what happens with the dollar in in the analog world. 90% of it is used for large financial transactions. This with money always a large percentage of it is used to conduct large-scale financial transactions. That's not unusual. The fact of the matter is the stable coin uh transaction volume continues to grow even though new issuance hasn't yet taken off. Right? I think it will take off, but I think it's going to take off when we move from traditional payment system to a new digital economy where where we're going to be using agentic payments and by the way agents can't have bank accounts and where agents are actually making

payments and where we're moving from, you know, like I, you know, I got on a airplane recently to fly overseas. I had to pay $18 just to get Wi-Fi access for for a 9-h hour flight, right? And I only wanted to send a few emails because I was planning on sleeping the rest of the night, but I had to pay for the full flight. Why can't I just pay in micro payments for the for the for the, you know, the the the bit the bytes of information I send? Well, with with aentic digital stable coin payments, I'll be able to do it. The reason you can't do it now is because bank transfers are too expensive. It doesn't make sense to do a 30 cent email and then pay a $3 servicing charge to the credit card company. But why couldn't

you do it on the credit card? I mean, I I pay for parking. Uh sometimes it's a very short time, 35 cents and the card will take it. Um right, but it's it's costing it's costing the bank more than that. They may be accommodating you, but it's the cost is still built into the system. Once we go to a digital network system, the cost of payment, do you know, William, I've seen a statistic that says the current cost of moving money every year around the globe absorbs anywhere between 1 and 2% of the world's GDP just to move money around the globe. Okay, >> imagine we get that 1 to 2% back by going to a technology that doesn't require all this identity verification.

All of you know the traditional the the standard remittance from the United States to the Philippines goes through six banks. >> Yeah. >> Think about how much savings we can get when we get back those those that friction that's built into system. >> Exly. That's what I call u the trust surplus. >> Yeah. >> And I talked about it yesterday. It's a very good point. >> It'll be in my next book. Um [laughter] it's it's the cost of of doing it today uh versus what you would do it otherwise without the blockchain technology. Exactly. And there's a huge amount of money that we are going to be saving by using the the blockchain to make these transfers.

>> It's already happening. It's it's you know we we always anticipate it's going to happen sooner than it does but 10 years from now we're going to look back and say wow did the world change. But what do you think of uh there's a movement of using stable coins for retail payments. Are they going to make a dent in retail payments or are they just being inserted there to save a little bit of money on the infrastructure kind of behind the scenes? >> So I don't think we've yet seen it but I think it's coming. I think retailers are going to find stable coins to be very very helpful instruments for brand loyalty and driving business. So once upon a time, every major retailer, Macy's and Gimbals and and and Bloommy Dales had a store card and with it they

developed relationships with their customers and over the years they gave that up to Visa and Mastercard. It's no longer the case. They don't have that relationship. But once there's a Bloomingdale stable coin, think about how they can communicate with their customers and say, "Hey, we know you bought a a a new winter coat last year. Well, we're having a sale next week on winter coats and if you use your your uh Bloomingdale stable coin, [snorts] you're going to get an extra 5% off and so they're going to be able to have relationship building through their stable coin operations. So, I think that's coming in the retail space. I just don't think we've seen it take off yet.

>> So, it will be an evolution of the points system, the loyalty. >> Exactly. Loyalty. >> Yeah. >> Because there is less friction with that money. Exactly. Basically >> and and less friction and direct relationship with the customer. You know, we often think about um uh uh tokenized securities as perhaps demand driven, but I tell people as a former senior executive with a publicly traded company, um the demand side, the the the the supply side of this is going to be enormous. Wait till public companies can use tokenized securities to have a direct relationship with each and every one of their shareholders. right now in publicly traded companies are lucky if they know who half their shareholders are because those shares are in street

name in different depositories different transfer agents but wait till they can use tokenized securities to have a direct relation so I think the de the supply side in tokenization whether it's in stable coins or others is as great of a driver as the demand side >> will they be allowed to do that from a regulation point of view though to to have this direct direct >> in this administration they will Okay. [clears throat] >> So, let's talk about regulation. >> That was a setup, right? That was a perfect [laughter] setup. [gasps] >> Let's talk about regulation because you you've seen it all uh from when it started. Uh where do you think we are right now? Um obviously, is the Clarity [snorts] Act in a good place? That's uh one question. But o overall or are we

going to see a watered down version? Uh let's let's talk about where we are in. You know, I say this and I don't mean this in a partisan way. If you're an in an innovate, if you are an innovator, this is the best of all times. And the reason is it it really is not cryptospecific. It goes back to an overall belief by the Trump administration that we face a mountain of debt like every other major developed economy. And the truth is we are not going to really slow down our entitlement spending to any great extent. And therefore the only way out is through growth. And so they have basically said we're going to encourage

growth in every technology. America always has grown through technological innovation. Right? We're not an a country. I mean we are but you know that's the path forward for us. And so whether it's biotechnology, space technology, drone technology, nanotechnology, um um uh and then of course uh digital network technology, the United States needs to be a leader. So basically the message is to every innovator in the world, come here. We're not going to chase you offshore. We're not going to um uh uh u nickel and dime you on every little regulatory matter. we want you to innovate here and we will adapt the rules around you rather than vice versa.

So the and this is something I write extensively about in in my upcoming book. The previous administration really put the squeeze on uh on digital asset innovation. I believe in the mistaken belief that maintaining the status quo would somehow maintain financial stability. Well, you don't maintain financial stability by keeping everything the same. you just actually create long-term decline. Look at Europe. And so this administration is all about let's innovate, let's grow. Now, now it needs to be across the board. That means Congress needs to be part of this as well. We do need the Clarity Act passed.

But you know the funny thing about innovators, they'll innovate even even without clarity, right? They've innovated for the last four years. They're going to continue to innovate. Clarity is really needed for the lagards, for the scaredy-cats. It It's not the It's not the It's not Standard Charter doesn't need the Clarity Act. It's that, you know, it's that the first the first Bank of De Moines that is sitting there saying, "Oh, I don't know if we can do this." >> But they are the ones fighting, they are the ones fighting it right now. >> Exactly. Well, you know, the American banks have fought every innovation that's come over the pike for the last 50 years. Whether it was branch banking, whether it was ATMs, whether it was u chips in credit cards, the American banking system have used their strong lobby in Washington to try to stop every

innovation. And then within 5 years, that once that innovation took off abroad and and customers came back from Europe saying, I just used a trip a chip reader in my credit card. Why am I swiping my card, the American banking system said, okay, we'll get on board with that innovation. But they fought it first, and they're doing the same thing again. But this time I'm hoping they're not going to they're not going to prevail. >> I remember when banks were fighting credit cards on the internet saying in 9697 that it was not safe. It was not secure enough. >> Yeah. >> And literally they they we had to go through gateways.

>> I just bought some some woodland in Vermont that that is adjacent to a cabin I've got that only comes up for sale every 50 years. And I was able to to grab hold of it. And there were people sitting in a conference room in Vermont for 5 hours yesterday waiting for the wire transfer to get there. And I was joking with them, the good news is in 5 years, you're going to wait 5 minutes, not 5 hours. But I mean, you know, the whole series of calling the bank, the bank said the wire went, can you give us a tracking number? I mean, that just is so archaic. And in fact, Europe's moved beyond that, but we're still in that world in here in the United States. But hopefully exactly what we're talking about today is going to change that. Definitely. So, let's talk a little bit about Ethereum. This

is an Ethereum conference. Uh, at the end of the day, um, we all know that Ethereum is a giant currently in the stable coin space. Uh, literally, uh, it's up to $3 trillion per month right now in transfers in transfers. Uh, 51% market share. Uh, market cap of stable coins on uh, Ethereum is 160 billion, 54% market share. What what's your viewpoint on on this dominance uh and and how it positions Ethereum in the long term, you being from an outside uh kind of looking in?

>> Well, first of all, it's a huge advantage, right? It it's it's you know, if you follow Formula 1, it's like being in pole position and and there's not somebody in the second seat or the third, there's five cars back before the next car. So, it's a huge advantage. Of course, now it depends how do you take advantage of that advantage going forward. And I think a lot of that is going to depend on continuing upgrading the protocol. Um you know the the L2 developers, continuing to innovate and develop and a lot of you are here today and here attending this conference building on that. Um I also think you know some of that is going to depend on exogenous conditions. Do we you know will this favorable development environment continue? I I'm confident it

will for at least the next three years. Um will Clarity Act pass? I think that will be very helpful. I think that will be a big unlock. Um, uh, so economic conditions, interest rates, all those things. But I think that once you've got that pole position, you know, the the the challenge is don't screw the startup. You know, when the light goes green, hit the gas and get going, continue to innovate, continue to develop, and take advantage of it. The future is the future of finance, the future of banking, the future of money is on digital networks. There's no question about it. Ethereum is one of the principle networks that is functioning, working well, building,

upgrading, people are building on. So it's a huge advantage. It's just a question don't screw it up >> and it has a network effects at this at some point in time it is very difficult to uh compete against network effects. Ex absolutely. By the way, I do believe though that the future of digital networks is going to be as as complicated as the analog past the future is going to be complicated as well. There's not going to be a lot of winner takes all. There's it the future of digital networks is a multi-etwork system just as in you know in credit cards we had Visa, we had Mastercard, we had AMX, we we have MX, we had Discover.

Why is that? because they all found an addressable market >> and I think very much in the future we're going to have some giants but we're going to have the competition and you know competition is good right compet there's strong competition for Ethereum they're behind the pole position but there's strong competition and competition makes all of us stronger >> true and we need to grow the market I mean at the end of the day if the market grows everybody benefits and and the competition is the market is those that are not on it yet not just who is behind you let's close by tell us a bit more about your book. I'm intrigued. Uh uh and and uh what's what is it about?

>> So so so it's called the the the new adventures of crypto dad and it's it's an inside look to policym during the Biden years during the this this Trump administration. Uh so it's it's got narrative story but it's ultimately a story of how uh uh hierarchies like the financial system like Tradfi we're here in New York City with Wall Street not far away. hierarchies often dominate, but then insurgent operations come along and often challenge them tremendously. And I use the fact that we're in the 250th anniversary to note that that anniversary that that that revolution began when the world's strongest military, the British army, was challenged by a ragtag network of yman farmers and militia men in Concord and

and and and shattered their force. It took seven years to win the war. But ultimately the the war was won not by the militia men but a combination of them and a new continental army that we created. And the result was a hybrid. American government today is a combination of Washington hierarchy with states rights, individual rights, uh separation of powers. It's it's a it's a hybrid of centralization and decentralization. And I use that as a metaphor for where I think crypto is going. The traditional financial system has been challenged by digital network technologies, by decentralized networks.

And yet what I think is going to emerge is going to be, and I point to this in the book, is a future that's a combination of centralized finance and decentralized finance. >> Great. So, you're mixing the the past and bridging it to the into the future, uh, the future of money >> with a few stories along the way, including a few stories of some of the characters of our industry that I've had the pleasure to know. >> Any music in it? >> I'll talk a little bit about music in it as well, you know, as I did in my first book as well. >> Great. Thank you so much, Chris. My pleasure, William. Thank you. Big round of applause for Chris. [applause]