When it comes to the economic breakdown, it has yet to be determined if the COVID-19 pandemic is to blame — or the institutional response to it. One thing remains clear, however: the frailties of the traditional financial system have been exposed and old plans for digital money are invigorated. On May 11, 2020, former CFTC chair Chris Giancarlo explained his push for a tokenized dollar while live-streaming during CoinDesk’s Consensus conference.
Is a Digital Dollar the Way Forward?
It seems we are steadily progressing through natural steps of technological evolution. For the longest time, humanity relied on raw materials, such as bronze, silver, and gold, to convey the informational value of goods and services. Then we moved to fiat money and paper notes as more convenient forms of accounting.
With the onset of computers and the internet, we gained access to debit and credit cards, but digital numbers still represented physical money in paper form that had to be stored somewhere in order to be retrieved. As cryptocurrency paved the way for a new way of thinking about money, we are approaching the last stage of breaking through the psychological barrier of money as a physical thing.
If money represents units of information, and if those units perform better in a digital ecosystem, it is a simple step to fully transform money into a digital asset. After all, digital space is all around us, accessible at a moment’s notice. J. Christopher Giancarlo, former chair of the U.S. Commodity Futures Trading Commission (CFTC), brings institutional credibility to begin such transformation.
Token-Based vs Account-Based
To better alleviate COVID-19’s impact on the economy, and prior to stimulus injections, House Democrats proposed in March to institute a digital dollar, which was ultimately discarded. However, this would have been an account-based digital dollar, with the Federal Reserve regulating the flow of money to retail accounts and commercial banks.
What Giancarlo has in mind, along with his associates Daniel Gorfine and David Treat, is a digital dollar that is tokenized. Tokenization would preserve USD’s cash form and, along with it, address privacy concerns. Daniel Gorfine, former Chief Innovation Officer who worked closely with Giancarlo, makes a compelling argument that a token-based dollar would be most aligned with America’s values:
“If we are creating the infrastructure of money for the future, we want to make sure that the way we are structuring that system is consistent with our privacy expectations, our norms, and rule of law.”
China’s CBDC Shadow
Giancarlo’s Digital Dollar Project first seized the public spotlight in January this year, at the World Economic Forum in Davos. During his address, Giancarlo framed his tokenized dollar as a way to spearhead innovation and, with it, drag along America’s outdated financial infrastructure.
As China develops its own alleviation project to COVID-19 pandemic, in the form of a central bank digital currency (CBDC), American leadership would be wise to not miss the opportunity to stay competitive and avoid the costly mistakes of continuing to do things the old way. Central banks across the globe are continuing to examine the benefits of CBDCs.
On its own, the Fed is a powerful entity. In fact, a compelling argument could be made that the Federal Reserve is the only true sovereign entity remaining in the entire world. In light of this, it is difficult to gauge which kind of system will be implemented in the long run – a tokenized dollar or a Fed-controlled account-based dollar.
Are you comfortable with the way digital money is moving toward tenets of cryptocurrency, minus the anonymity and decentralization? We want to know what you think in the comments section below.