The U.S. will consider pilot programs for Central Bank Digital Currency (CBDC) Digital Dollars from the Digital Dollar Foundation (DDF) and private sector interests. One market actor involved is Accenture, an Irish company that was Andersen Consulting prior to its split from Arthur Andersen, the accounting firm during Enron’s 2001 accounting scandal.
Accenture is providing the “first phase of funding” for the DDF to “convene private sector thought leaders and actors” for a Digital Dollar Project (DDP) to “assess benefits and outstanding challenges.” Accenture will make the early testing grounds “accessible to all stakeholders” and is matching funds for the launch of the first five pilot programs. “The DDP is open to participants from all relevant sectors, including commercial institutions, the innovation community, non-profit organizations, and universities…” The first three pilot programs are to be announced within two months. “DDP intends to make its CBDC test ground transparent and, public and private, and serve as a neutral platform.”
The DDF is led by J. Christopher Giancarlo, Charles H. Giancarlo, and Daniel Gorfine. Per co-founder Christoper Giancarlo, former chair of the Commodity Futures Trading Commission (CFTC), “There are conferences and papers coming out every week around the world on CBDCs based on data from other countries… What there is not, is any real data and testing from the United States to inform that debate. We’re seeking to generate that real-world data,” and “We need to better understand how to balance the complex issues of a CBDC and how to incorporate key societal values, like privacy rights, financial inclusion, and rule of law.”
According to the Digital Dollar Foundation and Accenture’s May 3rd press release: “The DDP will release to the public the results of and insights from the pilots for use in academic study, as well as policy consideration by Congress.” DDF is promising that CBDC’s will bring modernization, facilitate economic inclusion, and represent a frontier for innovation in fields such as digital identity. The press release also says, “80% of the world’s central banks are engaged in research or experimentation toward developing a CBDC. These include the People’s Bank of China, the European Central Bank, and the Bank of England.” China’s digital yuan is launching soon and being tested in major cities, including Beijing and Hong Kong, complete with expiration dates for a new way to centralize control over monetary stability or lack thereof. Such a manageable currency gives officials another tool to control, or create, boom and bust cycles.
In October of 2020, Trump-appointed Federal Reserve Board Chairman Jerome Powell told a panel on digital payments hosted by the International Monetary Fund (IMF), “We do think it’s more important to get it right than to be first,” assuring a look at potential benefits of a CBDC, potential risks, and to “recognize the important trade-offs.” He noted the need to evaluate considerations including cyberattacks, counterfeiting, fraud, illicit activity, the effect on monetary policy, and “preserving user privacy and security.”
In February of this year, at a conference hosted by the NYT, Treasury Secretary Janet Yellen said, “Too many Americans really don’t have access to easy payment systems and to banking accounts… a digital dollar, a central bank digital currency, could help with [that, and] …it could result in faster, safer and cheaper payments….” Her cautions and concerns included impact on the banking system and financial stability, money laundering, and consumer protection. She also added, “Would it cause a huge movement of deposits out of banks and into the Fed? Would the Fed deal with retail customers or try to do this at a wholesale level?”
The DDP’s whitepaper states, “The digital dollar will support a balance between individual privacy rights and necessary compliance and regulatory processes, decided upon by policymakers and ultimately reflecting the jurisprudence around the Fourth Amendment… A digital dollar will not impact the Federal Reserve’s ability to affect monetary policy and control inflation… [it] could act as a new policy tool … The chosen technological architecture will offer the flexibility to adapt configurability based on policy and economic considerations … A digital dollar will act as a catalyst for innovation and will not be antithetical to the development of private sector initiatives.”
In an interview with Paypal President and CEO Dan Schulman, who is also founding CEO of Virgin Mobile and former Sprint executive: “Ten years from now, you will see a tremendous decline in the use of cash. All form factors of payment will collapse into the mobile phone… central banks need to rethink monetary policy…” PayPal had a record year during the 2020 lockdown, processing 15 billion+ payments for its 375 million users, launching contactless QR-code payments in 20 markets, and recently adding limited cryptocurrency functionality (users can only buy Bitcoin through Paypal and cannot send bitcoin into or out of their account).
Shulman is vying for his company to be a partner to new central digital dollar systems: “Central bank-issued digital currencies … might allow the government to open up Fed funding to other institutions besides banks, potentially companies like PayPal… so if you make a transaction it’s not your username and password that’s giving you permission to do that. It is 130 different variables that we look at on every single transaction, in milliseconds, to be sure that it’s you. It’s this idea of Big Data of really understanding who you are, not who you said you are.”
The Economist says, “[State issued digital currencies] could give governments, or a few private bosses, a wealth of information about citizens. It would also make the institutions a lot more vulnerable. A cyber-attack on the American financial system that closed JPMorgan Chase for a time would be distressing. A similar attack that shut down a Federal Reserve digital currency could be devastating.”
CBDC’s compete with a mature cryptocurrency market that has already solved many of these issues. Many cryptocurrency projects are focused on increasing the privacy of transactions on their networks, while CBDC’s tend toward trackability. None of the top cryptocoins presumes that it would benefit from allowing the creators of the coins to decide how money is spent, whereas proposals for a central bank currency are using that as a selling point. Satoshi Nakamoto’s Whitepaper shows that Bitcoin was invented to allow peer-to-peer transactions that don’t need a financial institution between them. Bitcoin is thus decentralized democratically among its users, while CBDC’s are under the control of a central entity. CBDC’s could be stable in value over time, unlike Bitcoin, which has required the invention of separate cryptocurrencies pegged 1:1 to the dollar to mitigate its high volatility. Bitcoin has scarcity baked in – the number in circulation is a known constant, while a federal bank could choose to change the supply of digital dollars at any time. Doing so changes the value of each digital dollar already in circulation, which can punish savers by effectively transferring wealth to recipients of the newly created supply. As such, Ron Paul calls GovCoins the “21st century equivalent of throwing money from helicopters.”
Keith Weiner for MoneyMetals reasons that Fedcoin is inevitable because, without a digital dollar to enforce negative interest rates, customers would withdraw rather than pay the bank to hold money for them. Consumers now have Bitcoin and other cryptocurrencies as an option to attempt to insulate themselves from inflationary confiscation of wealth to add to assets like land and precious metals. Weiner goes on to highlight the contrast between these two establishment leaders:
“Powell is more conservative, and his focus is on addressing the potential competitive threat of bitcoin and digital currencies from countries such as China. However, if he really wanted to make the dollar more competitive against the yuan, then he would just abuse the Fed’s credit less. Yellen nods to a progressive idea, saying that a Fedcoin ‘could help address hurdles to financial inclusion in the U.S. among low-income households.’ However, if she really wanted the ‘unbankables’ to be able to open accounts, then she would just repeal anti-money laundering and other regulations that penalize a bank for crimes committed by its clients.”
It remains to be seen whether digital currencies designed by the federal government and central banks in cooperation with private-sector financial interests in the U.S. will be fully trackable and confiscatable as most pilots worldwide propose. The opportunity for programmable functionality would seem too tempting to resist. A digital dollar could deposit funds in any account nearly instantaneously, such as Coronavirus or other stimulus payments, welfare benefits, and Paycheck Protection Program (PPP) loan deposits. Central authorities could make inflation regulation baked-in, with parameters easily changeable by policymakers. It could also be used with A.I. to auto-process taxes and reparations or to prohibit unwanted behavior, such as the purchase of banned substances or books, without calling on human law enforcement.