Dive Brief:
- J. Christopher Giancarlo, former chairman of the Commodity Futures Trading Commission (CFTC), is launching a think tank to study converting the dollar into electronic currency based on blockchain, the technology behind bitcoin.
- Digitizing the dollar could bolster officials’ anti-money laundering arsenal and speed up the processing of transactions. But it may also prove a death knell for financial privacy because all transactions could be electronically tracked.
- At risk is the dollar’s status as the world’s dominant currency, Giancarlo wrote in an October op-ed in The Wall Street Journal. If the dollar cedes ground to digital efforts from other countries or corporations, the U.S. could lose the benefits of backing a sought-after currency, such as stable food and energy prices and low borrowing costs, Giancarlo wrote.
Dive Insight:
Lawmakers have urged regulators such as the Federal Reserve to launch a pilot program digitizing the dollar. The central bank risks losing control of monetary policy if private companies — and not the government — develop digital currencies, Reps. French Hill, R-AR, and Bill Foster, D-IL, wrote in a September letter to Fed Chairman Jerome Powell.
The letter came in response to concerns over Facebook's Libra project and news that China is working to create a digital yuan backed by that country’s central bank. Major U.S. banks have begun their own tests: JPMorgan Chase with a blockchain-backed digital coin, and Wells Fargo with a digital cash platform.
Giancarlo served as chairman of the CFTC, which regulates the derivatives market, from 2017 until his departure in July. The agency first allowed bitcoin futures products to enter the space during his tenure.
He earned the nickname "Crypto Dad" — which he has embraced — for praising the technology’s innovation when other regulators were more skeptical. He testified to the Senate Banking Committee that "'do no harm' is the right overall approach" for blockchain.
Giancarlo, along with his brother Charles — a longtime Silicon Valley executive — and former CFTC Chief Innovation Officer Daniel Gorfine — launched the Digital Dollar Project on Thursday in partnership with Accenture. The consulting giant has worked with the central banks of Canada, the European Union and Singapore on digital currency initiatives.
Sweden’s central bank said last month that it would work with Accenture on a pilot project to develop the "e-krona," a digital version of the Swedish currency.
"Like with the physical infrastructure of this country, if you don’t modernize and keep up with the times, those strengths will begin to fray," Giancarlo said this week, according to The Wall Street Journal.
"The digital 21st century is underserved by an analog reserve currency," he said in a press release Thursday. "A digital dollar would help future-proof the greenback and allow individuals and global enterprises to make payments in dollars irrespective of space and time."
Putting the dollar on the blockchain may take years. And despite the anti-money laundering safeguards that may come with digitizing, some skeptics have raised concerns it could allow bad actors to steal — or raise — digital money.
About 80% of the 66 central banks surveyed by the Bank of International Settlements said they were looking into issuing digital currencies, according to a report issued this month. That’s up from 70% a year earlier. The proportion likely to issue a digital currency to the public in one to three years doubled to 10%, the survey indicated.
“A significant minority, representing a fifth of the world’s population, look likely to issue a central bank digital currency very soon,” the BIS said. About 70% don’t anticipate doing so imminently, the organization said.
