Crypto and digital currencies are rapidly changing the nature of money itself and continue to be a disruptive threat to the global financial system. As businesses and governments embrace the possibilities of transformative financial technologies, how will this reshape the global economy and how will the threat of macroeconomic instability be contained?
J. Christopher Giancarlo, former Chairman of the U.S. Commodity Futures Trading Commission (CFTC) and author of “CrypotoDad: The Fight for the Future of Money,” joins our host Kevin Kajiwara for a compelling discussion on the rise of digital and crypto currencies, how they are impacting the financial sector, and the role of central banks and governments in managing the future of money.
The Future of Cryptocurrency
The pedestrian view of cryptocurrency is that it’s a new asset class like gold or commodities that will behave as a new investable asset class. Giancarlo sees this as a massive underestimation and believes that cryptocurrency actually represents the internet revolution that has occurred in retail, transportation and entertainment finally occurring in finance, banking and money. Within 10 years, every major economy will have a central bank digital currency, with China having already rolled out its digital Yuan.
How Money Moves
Ninety percent of the world’s money moves as a series of debits and credits between financial systems. Therefore, it’s the financial institutions that record who owns what and decide if the transactions are legitimate. Cryptocurrency, however, can use the internet to confirm who owns what, meaning cryptocurrency owners are able to move money around the globe instantly without going through a bank.
Types of Cryptocurrency
Bitcoin uses the worldwide web to confirm its value. It has a fixed supply, meaning if demand goes up or down the price of Bitcoin will move, making its price susceptible to volatility. Stable coins, on the other hand, have their value tied directly to existing sovereign currencies, making it less volatile. There are also sovereign digital currencies, which are distributed directly by governments to allow for peer-to-peer payments using distributed ledger technology.
U.S. Dollar Supremacy
The U.S. dollar has dominated international trade since the end of World War II and China is determined to move outside of that system. They are planning to use their central bank digital currency to trade with countries in their orbit, thus removing their reliance on the dollar and their susceptibility to U.S. sanctions.
Sending money between countries costs between 7% and 17% of the total transfer and can take up to seven days to arrive at its destination. Cryptocurrency can be transferred instantly between people in different countries, so it is a significant improvement on the existing systems.
There are currently over 30 pieces of legislation in the House and Senate looking to regulate cryptocurrency while the Federal Reserve is working on developing a sovereign digital currency. None of these laws are likely to be passed until at least 2023, but the U.S. government is already considering these issues. Once the U.S. creates its own sovereign digital currency, the question is if the U.S. will allow the digital dollar to operate alongside stable coins or Bitcoin or if they will follow China’s lead and insist that their sovereign digital currency is exclusive. Giancarlo hopes to see a partnership between the government and private sector to develop the future of digital currency.
Cryptocurrency and Identity
When you use Apple Pay or Venmo as your form of payment, the transfer feels instant, but there is actually a whole series of verifications that take place. The payment systems identify who’s sending the money and who receives the money, meaning people need an identity and a bank account to use these systems. Over a billion people worldwide don’t have legal identities, which subsequently locks them out of these financial systems. Transfers in cryptocurrency happen instantly so business owners get the money sooner. They also don’t need to check your identity, so anyone can send money at any time if they have the money in their account. Cryptocurrency is still traceable through the blockchain, so it’s not totally off the grid, but it doesn’t require the constant identity checks that sending money through banks does.
Cryptocurrency and Privacy
Giancarlo believes that our freedoms in a capitalist system depend on our financial liberty. Banks record every payment that you make through them, which leads to potential complications. For example, there have been a few cases of Canadian banks stopping money from being contributed to politically dissenting groups. We don’t want the government or big tech leaders to be able to see every controversial political contribution we make, and making these donations through digital currency would allow for a level of privacy that our current systems do not offer.