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John Donvan:

Hey, everybody, and welcome to Intelligence Squared. I’m John Donvan. And today we’re debating something that doesn’t exist yet. And we’re going to be asking whether it should eventually exist. And so, here is the question we are putting up for debate. Do we need a digital dollar? Okay, so maybe this is not one you’ve heard argued before because of that nonexistence factor, and also because it may not be entirely clear what a digital dollar is supposed to be. So, before we actually get to the debate, we are going to do something different this time, and we’re going to ask our two debaters not to argue just yet, but to help explain and lay down some understanding of what the term digital dollar means. So, let’s welcome Dante Disparte, who is Chief Strategy Officer and Head of Global Policy for Circle, and that is a financial services firm that works in private digital currencies. Dante, welcome to Intelligence Squared. It’s great to have you.

Dante Disparte:

Thank you, John. Great to be here.

John Donvan:

And Gillian Tett who is chair of the editorial board and U.S. editor at large of the Financial Times, Gillian, you have joined us and debated a bunch of times before, so this is definitely a welcome back to you.

Gillian Tett:

I’m delighted to be on the show, particularly with someone like Dante.

Dante Disparte:

[laughs]

John Donvan:

So, we’re going to try asking the two of you to hold back on the arguments and help us understand this term digital dollar. Dante, I’ll go to you first. And I think the way I want to ask you is, what is a digital dollar not?

Dante Disparte:

Right. Well, I mean, we could start with what it is not it is not currently in broad circulation, it is conceptual framework. Born and accelerated, it’s at some level in 2019, where central banks around the world responded to two fears. One was the fear of big tech entering the payment and money movement system, and the other is the fear of China tech. And so, the clearest definition of what a digital dollar would be, is a digital dollar issued by a central bank, in the case of the United States, obviously, the Fed or in other countries, their central banks, that could exist at a retail level and that would be supported over the internet or other sorts of technologies for transmission, in the same way that you and I enjoy the transmission of physical money today.

So, that that would be like the strictest definition is issued by a central bank and as a part of the retail payment system.

John Donvan:

Gillian, do you see it the same way or any quibbles with that definition?

Gillian Tett:

I broadly see the same way. I mean, a dollar is basically a currency created by the Federal Reserve, central bank. But I would add something else to it, which is, to me, the easiest way to imagine it is to think about digital tokens. And the easiest way to imagine a digital token, which sounds abstract, is to imagine your phone taking a photograph of a friend. And that photograph is not your friend, but it’s a token of your friend. And you can send that picture across the airwaves wherever you want, whenever you want.

And so, in some ways, what a digital dollar is, is a cyber snapshot, a token representing a dollar created by a central bank, that can be zipped around the world anywhere you want on your phone or internet, or any other cyber link you have.

John Donvan:

And in what way is that different from the experience many people have now of already moving dollars around with their phones using things like Venmo and Zelle?

Gillian Tett:

Well, that’s a really good question. And it comes down to essentially to who is actually creating the currency, what kind of control you actually have over that currency, whether it sits in the central hands of a central bank or not. One of the points to make about digital dollars and many aspects of digital aspects is that it’s not necessarily a complete step change about what we have already. But it is a significant shift. And there’s one other thing that’s really important to stress about this, which is that when people talk about digital dollars, they often mean the digital currencies created by central banks.

However, they can also be under some definitions created by private sector institutions, if there are other dollars backing or other dollar assets backing what they’re creating. So, there are some companies, you know, which are essentially creating quasi digital dollars, but backed by real dollars as well.

John Donvan:

And are we talking Dante about this the digital dollar being a new currency? Or is it another variation of the dollar with that we know in the sense that there are paper dollars and there are electronic dollars, or is it a new currency?

Dante Disparte:

Well, what would make it new and unique is the marriage of the preservation of privacy, the marriage of the ability to have censorship resistant transactions, and peer to peer transactions with the internet, and that’s where I think the concept of a digital dollar becomes boundary destroying when you think about, you know, traditional money and regulation, and the role of central banking is that, at some level, the fact that as Gillian described it that because of an internet native form, it has the super powers of the internet and the transmissibility of the internet.

At some levels, it stops respecting the traditional four walls of banking and payments and monetary policy. So, in that sense, it would be distinct, but it would also potentially represent a liability on a central bank, as a guarantor or a supplier of last resort and an expression of monetary policy, despite the fact that it would have this transmissibility in a digitally native manner.

John Donvan:

And the last thing I want to ask you is a digital dollar is not a cryptocurrency, or is it?

Gillian Tett:

Well, again, at the moment, the field is moving so fast that language tends to be quite ambiguous. And it’s often a spectrum. And a single word can mean several things. But I’d go back to this idea, again, of taking a token of taking a snapshot of your friend, and then sending it somewhere else.

Now, you’ve only got one friend who actually exists in real life. If you take a photograph and frame it in the traditional way and put it on the wall, then you actually have a limited quantity of photographs. If you start zipping that photograph back and forth a gazillion times and potentially altering it, and have the power to do that yourself on your phone, then essentially, you’re losing control of that friend image. And so, one of the key questions at the heart of all this is, what is the mechanism to control the supply of that token? Is it in the hands of a central bank, who says actually, I want to know every single token that’s out there and control it, or at least have a control over the supply? And that’s kind of what happens right now with dollars, when a central bank actually creates currency and dollars, they control the supply overall, to a degree, you can argue about whether commercial banks can create more dollars or not. But that’s roughly the broad idea. When you get into a world of truly digital currencies, essentially, it’s the individual armed with a computer who starts creating the currencies.

And the real question is, is there a limit to that creation of currencies or not? Is it done through clever algorithms? And the way that they Bitcoin is mining of the currencies and tokens? Or is there something else which controls it and to what degree does it sit in a central bank, or individuals?

John Donvan:

And Dante, I was going to ask you the same question, is it a cryptocurrency, but I sense that you agree with most of Gillian’s description, but I think to help the general audience again, I’ll put it this way. How is a digital dollar not the same thing as Bitcoin?

Dante Disparte:

Well, a digital dollar would not be the same thing as Bitcoin, despite the fact that notionally it may leverage many of the same technologies. And so, one of the technologies that a digital dollar would ostensibly leverage is blockchain based ledgering.

And so, public blockchain infrastructure like Bitcoins, and there are many others have solved one of the accounting world’s most vexing challenges, which is the double spend challenge. And so, in Gillian’s example, if she has sent that image to me or that digital currency to me, in a world in which that’s a peer to peer transaction, it has to be final and it has to have recorded the debits and credits in a transparent manner so that the transaction is completely settled. With physical cash today, because of the opacity of how physical cash may be transacted we have all kinds of instances of fraud and abuse and differences of opinion where it ends up becoming my word against Gillian’s, if in fact, no one else saw us exchange the money. The idea of digital currencies and blockchain based financial services is that anyone armed with an internet Lookingglass as small as a phone, or as large as a computer, is a part of that collective witness that can verify the transactions actually took place. So, that’s a very unique property, which gives digital currencies and cryptocurrencies cash-like transmissibility and transparency.

John Donvan:

All right. I hope that was helpful for our listeners. And thank you very much for indulging me and us in that explanation without actually debating yet. And I don’t think that either of you gave away which side of the question you’re on. So, that’s a neat trick. So, let’s find out on that one. On the question, do we need a digital dollar? Gillian Tett, are you a yes or no?

Gillian Tett:

I am a yes. And I’ll explain why in a few moments.

John Donvan:

All right. So, obviously that means Dante you are?

Dante Disparte:

I’m in the formidable task of being a no and being on the opposite side of Gillian on this one.

John Donvan:

All right, let’s get to the arguments then. And Gillian, why don’t you go first and tell us why you’re a yes and answer to the question do we need a digital dollar?

Gillian Tett:

Well, I should start off by saying there’s two forms of digital dollars and I do want to stress this. There is central bank digital dollars, which is entirely controlled, created, and run by central banks.

And there’s also the other concept of the digital dollar, which is companies a bit like Circle, who are essentially creating quasi dollars, which are tokens that are backed by their holdings of real dollars or real short term money market instruments. So, you can define it both ways. I think the second version definitely has a reason to exist. And I’m sure Dante would agree with that as well. Because essentially, what a digital dollar that’s created by a company like Circle or a token backed by real life dollars is doing is essentially creating a new element of portability, fungibility to dollars around the world, for companies or consumers who want to make transactions and to do so without going inside the pipes of a central bank necessarily in a rather clunky way. So, that’s the kind of private sector version of it, the public sector version and the central bank version of that is different. That’s really the central bank itself, creating ledgers and running ledgers. And the reason why I think we need that is really twofold.

Firstly, for the simple fact that we live in an era of extraordinary technological change and experimentation. And we do not know where that technology experimentation is going. Maybe it’ll just fizzle out. Maybe it’ll turn out that existing computer ledgers, or rather, the kind of blockchain ledgers are just too dang clunky to ever be much use. At the moment, Blockchain is quite clunky, you can’t make many payments, or maybe it’s going to accelerate dramatically. And quite soon, it will be so efficient that everyone uses it, we don’t know. But I think that central banks have to have skin in the game and be practicing and developing it so that they can keep up with the rest of the world. Secondly, and perhaps most importantly, we live in a time of extraordinary geopolitical flux. China has been very upfront about the fact that it wants to try and compete with the dollar with its own currency there are other countries that are likely to try and do so as well.

And if the U.S. does not get into this game now, by experimenting and creating a digital dollar under some conditions, then it’s going to find potentially that it will get outmaneuvered and out arbitraged by other countries like China.

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John Donvan:

I’m John Donvan. This is Intelligence Squared U.S. More of our conversation when we return.

Welcome back to Intelligence Squared U.S. Let’s get back to our debate. Dante, what’s your argument for saying no in answer to the question, do we need a digital dollar?

Dante Disparte:

Yeah, I mean, my argument for saying no at one level begins with acknowledging I think as Gillian rightly summarized the current state of play in the geopolitical reality. So, just to add a little bit of context to that, today, you know, the Atlantic Council geo economic center tracks this very closely, something like 105 central banks, representing 95 percent of the world’s GDP, are at some degree of experimentation study on the risks and merits of what are known as central bank digital currencies.

And to be clear, that is the variant of digital currencies that I’m opposed to, in no small measure, because I think they fail to acknowledge how money moves today. And so, on the score of central bank digital currencies, I’m a resounding no. And on the score of the societal temptation to potentially have a big red button and a centralized authority that could ostensibly de-platform people from their money, where the air gap between the central bank, your wallet, and how you spend money is a feature, not a bug, I think is a temptation to risky. The other point is to acknowledge the fact that the vast majority of value added money in circulation today, stems from some degree of rules based private sector innovation and competition. The two tiered banking system, the fractional reserve banking system, breakthrough innovations on moving money, whether in physical form, or in paper form or in cryptographic form, all are responsive to public-private oversight and rules based competition.

And so, the fears of big tech entering the money movement domain and candidly keeping up with China and the People’s Bank of China’s efforts, which were unveiled at the Winter Olympics in Beijing recently and are effectively a move towards a model of currency and model of currency movement that I think have some pretty big boundaries around them vis-a-vis privacy, vis-à-vis continuous innovation in the financial and private sector. I don’t think that’s an operating model that has served any country very well for a very long period of time. And so, some folks analogize this to a digital currency space race. And so, then it is worth harkening back to the original space race, that we wanted, so called we, the West wanted when our political leaders gave us a destination and then we ultimately marshaled a societal approach that ended up creating innovations that benefit society, humanity, markets, but were nonetheless responsive to a set of rules.

And so, when you think about some of the challenges that central bank digital currencies represent, you’ve seen studies coming out of Europe that have indicated that a digital euro would put downward pressure on Euro deposits, because it would be construed as a safer economic acid in the European Union. This is one of the reasons why central banks have always put out the concept of having balance limits on Central Bank digital currencies, if they were in circulation. The same also holds true in the Chinese experiment. And then it would again dismiss the idea that in the 21st century, where you’re and my financial needs do not take banking holidays, how do you then have an operating model where the central bank becomes a retail bank. And so, in the most extreme, that operating model, in my mind, would pretty fundamentally transform the typically invisible hands of central bankers and turn them into competitors with high street banking and retail banking.

And so, that’s the version of this innovation that I’m allergic to. And I think we should have the hard societal questions. The last quick point I would make is the UK Parliament studied this in a parliamentary inquiry not long ago, and came out on the side of this may very well be a solution looking for a problem that ignores the rules based free market innovations that are currently taking place and are responsive to regulatory clarity.

John Donvan:

All right, thanks very much, Dante. So, Gillian laid out two kinds of digital dollars, the central bank digital dollar, in this case it would be created by the Fed in the case of the United States versus the quasi dollars that companies are creating. And it seems as though you don’t disagree over the quasi dollars. So, let’s dig in on the central bank digital dollar model. And, Gillian, I have a question or two for you. But before I got to them, was there anything that you heard from Dante that you would want to respond to off the bat?

Gillian Tett:

I think the main thing I’d like to respond to is this, and I can’t stress this strongly enough, you know, we are at a very early stage of innovation and development.

It’s a bit like the early stage of the internet, and people saying, you know, I can’t imagine why you’d want to use the internet, because it’s very slow and clunky. You know, in the early days, the internet, if you had an email address, you know, it was a whole string of numbers, and no one really liked using it, you couldn’t guarantee it would work. And it’s very easy to turn around and say, oh, that’s ridiculous. Let’s just get out of this. But actually, we now know that the technology evolved much more rapidly than we expected. And I am probably sharing Dante’s concerns about privacy issues. You know, if you have a true ledger that’s run by Central Bank in terms of recording monetary activity, that means a central bank can eventually end up knowing everything you’re doing. And that kind of privacy intrusion is something that, you know, essentially the central bank and China’s trying to aim for, it’s something most Western companies and consumers will probably hate. However, this is a however, but I didn’t see anything wrong with the Fed, essentially trying to introduce this alongside the current system, or as an adjunct to the current system, and letting consumers i.e. the market decide to some people want to try and use that kind of finance, to again, as I said before, keep skin in the game and keep essentially involved in this fast moving technology.

John Donvan:

Gillian, and what would be the consequence of, in a sense, losing to China in that competition, if China were to succeed in creating a digital currency that effectively, I think you might be saying displaces the U.S. Dollar as the international standard? What would be the consequences of that? And is that what in fact, what concerns you?

Gillian Tett:

Well, let me say, first of all, I don’t have a particular point about the value or not value of having the U.S. dollar at the center of the system. I’m just saying that descriptively, not prescriptively, a sudden shift in the dollar regime would be very, very destabilizing in many ways.

It’d be destabilizing for the way that the pipes of finance globally currently work, it would destabilize the potential for trade relations. And it could contribute to a growing sense of destabilization of fragmentation in the global geopolitical order. You know, the reliance on the dollar right now does create a tremendous amount of vulnerability for many non-American countries. I’m not saying that’s necessarily a good thing or bad thing. But one way to understand what’s happening in the world today, the financial system is a bit like imagining, sort of the transit network in Chicago. Anyone who’s been to Chicago knows that all the transit lines go out from the outside into a central hub and then if you want to get from one end to Chicago and other end, you often have to go into the center change and then go out again. It’s quite hard often just to go between the adjacent districts. That’s in a sense, a bit like what’s happening with the global financial system today with the dollar and that people have to go into dollar hub and then out again if they want to trade across much of the world.

You can sit there and say that, you know, that’s irrational, it should be more balanced, it probably should be. But if you were suddenly to shift overnight, and that’s essentially what some of these new digital currencies do, that could be a very big jolt for the system as a whole. So, if nothing else, the U.S. central bank needs to stay in that game, and be simply able to respond and adapt as conditions develop.

John Donvan:

So, Dante, what I’m hearing from Gillian, the overarching theme is that the United States cannot be head in the sand about this, because things are moving things are moving elsewhere. And the outcomes are unpredictable, but they would be predictably not great for the United States if things go to a new innovative place in the U.S. is not part of that. So, what’s your response to that overall concern?

Dante Disparte:

Well, I don’t disagree at all that hurry up and wait is not a particularly great strategy for central banks, or any part of a free society to respond to the emergence of competition, geopolitical and geo economic realities, or the emergence of new exponential technology.

So, I do think we should have some skin in the game as Gillian described it. And candidly, the whole world is waiting for the United States to lean in. There’s a whole host of international bodies from the Bank for International Settlements, the Financial Action Task Force, the Financial Stability Board, that have for the last five years or so waited for the United States to exhale and demonstrate that that we mean to lean in and continue to have a role to play in a lot of this evolution of money and the uploading of money on the internet. However, and one of the analogies I’ve tried to use for my friends who are central bank, digital currency, maximalist is the Federal Aviation Authority doesn’t fly planes and build jet engines. However, it does have a say in terms of responsible conduct in the skies. And we’re better off for having choice and I think the skies are safer. And this is one of the debates that I think the central bank digital currency posture currently omits, which is that there is a current world in which more than $120 billion of privately issued digital currencies known as stable coins are currently circulating on a host of open public blockchain ledgers and that have increasingly transmitted trillions and trillions of dollars very safely across a whole host of traditional financial services, sectors, and active digital wallets all over the world.

And to ignore that breakthrough innovation would be to borrow one of Gillian’s analogies that if this is the internet of value, it is still in its dial up phase. And what a lot of regulators and frankly, what the central bank digital currency conversation is telling us is stop innovating, it would be like stopping the development of the internet, because we didn’t like the dial up phase or the worldwide wait phase. And so, that’s the tension is we have to acknowledge the role private, responsible regulated actors are playing, and not have central bank digital currencies presented as a substitute for this innovation, but perhaps is additional to it. And that, to me is how we land at winning the long term stakes of a digital currency space race.

Gillian Tett:

Can I just jump in and say, I’ve got three things to say on that. One is that obviously, we’re Dante’s arguing from which is Circle, which is, you know, one of the groups that actually runs essentially a private digital dollar like currency that’s backed by dollars. You know, no one, turkeys never late for Christmas, Circle’s never going to say, gee, what a great idea to have the Fed come in and displace us. And that’s not what I’m arguing, although certainly in the Chinese case, that is actually what’s happening in China, the central bank has come in and displaced all of the private sector alternatives, because it wants control —

John Donvan:

And how has it done that? It’s done that through legal means as well, correct?

Gillian Tett:

Yeah, it’s basically typical Chinese, you know, authoritarian way. It’s essentially banned Bitcoin. I think it’s banned a lot of Bitcoin activity; it’s banned a lot of alternative digital crypto activities.

And it’s essentially, you know, threatened Jack Ma, who created a digital fintech company with all kinds of political issues —

John Donvan:

So, it outlawed the competition to their digital currency?

Gillian Tett:

Exactly. Nobody is suggesting doing that, to my knowledge within America. That is not an American way. On the contrary, Jay Powell has recently indicated in a speech that he would refer the private sector companies like Dante’s, the one that Dante works for, to actually take the burden of much of the innovation.

John Donvan:

And please remind our listeners who Jay Powell is.

Gillian Tett:

Jay Powell is the chair of the Federal Reserve so he’s basically like the pope in the financial Vatican that goes around with all the priests aka banks and blessing everybody and speaking of financial Latin that no one else understands. But I’m well aware that right now we’re probably all speaking financial Latin and we’re having to basically put it into back into vernacular because otherwise we’re going to end up you know, in love with our own mysticism. So, apologies for anyone who’s listening.

Dante Disparte:

And if I could just build on the Vatican analogy, in the papal conclave of central bankers, there is one distinction that the Chinese digital currency initiative from the People’s Bank of China would have over the current generation, even the private sector innovations that are currently in circulation. And that is this idea of digital legal tender. Right. And today in a world in which there’s regulatory ambiguity in the United States, the United Kingdom and other major Western countries around the world about the role of privately issued digital currencies, and what type of legal certainty they enjoy is a world in which I think one of the clear advantages China has produced is this idea of conferring legal certainty and digital legal tender status on these individual tokens. Now at great societal cost, privacy, censorship, resistance, the soft expropriation of private sector actors and sort of competitive actors in the free market.

All of those costs are very high. There’s one other cost that I think matters, which is in the United States, we are woefully behind the rest of the advanced economies, in what is known as real time gross settlement. The Fed now system is a system that was designed and is now late so I joke that it’s called fed when that was supposed to create faster intrabank and interbank payment rails, sort of an instant payment network. That is delayed and an oftentimes the domestic central bank digital currency conversation is hiding the void of real time gross settlement in the U.S. for which a digital currency wouldn’t necessarily be a fixed because those are wholesale pipes that connect the banking system to the Fed and vice versa.

John Donvan:

Well, let me jump in. Because my understanding is that one of the benefits, perceived benefits of a digital dollar is that it would fix that problem, that it would smooth out transactions, lower transaction costs, not just for big players, but for small players and individuals as well, Dante.

Dante Disparte:

Well remember and just one quick point, and I suspect Gillian and I we’re not going to find a lot of disagreement on this issue is, banks live on non-interest income, aka the death by thousand cuts fees that you get for payments activities, for checking activities, anything that would be construed as a convenience inside the traditional banking space is often paid for in the same way that with telephony, the longer the call traveled over fixed line infrastructure, the more expensive it was. And so, if you want a banking outcome that is fast or convenient, you pay a premium for it. And so, one of the gaps we have in domestic payments in the United States is the lack of interoperable payment systems. And so, the advent of digital currencies and public infrastructure, this blockchain digital wallet environment is that it’s creating a really, really interoperable payment system that overcomes what is known as the walled garden problem, which is that inside the environment of a PayPal, you have very efficient payments, the second you want to send a payment to an outside account, then you enter the realm of the systems are not interoperable. And ultimately, you’re at the mercy of a lot of fees.

And so, presumably, fed now would have a trickledown effect of making the interbank payments more efficient, and then it would trickle down to the end user. But I still think you need competition for lowering fundamental costs. And that’s why, again, candidly, a lot of the banking lobby is at once against Central Bank digital currencies, but they’re also fundamentally against normalizing companies like mine, who were introducing new forms of moving value in the 21st century.

Gillian Tett:

I mean, I’ll jump in and say two things. First, the turkeys do not vote for Christmas. No bank is going to say, well, what a fabulous idea to have Circle competing with us. And Circle is never going to say, well, what a fabulous idea to have the central bank competing with us. You know, that’s called natural business incentives. But I think it’s important to step back here and add to what Dante is saying, which is that one of the reasons why Bitcoin, why central bank digital currencies, why all of these digital assets are being discussed, is because the current legacy systems are pretty rubbish in many ways.

I mean, the bitter irony of 20th century capitalism is that many sectors of business cut out middlemen, became hyper efficient, and became hyper streamlined and took out all the fees in the middle in the name of creating more capitalist efficiency.

John Donvan:

Like what sorts of businesses just to site some examples?

Gillian Tett:

Well, the retail world for example, you know, think about Walmart, how do you get such cheap things on Walmart? How do you get such competition when you go online and try and buy you know, a new sofa is because you can see 20 different examples and you can 20 different shops and you can have competition and you can get rapid shipping, et cetera, et cetera. Because finance in many ways has lagged way behind. The only other sector has been as almost as bad has been American healthcare, where there have been masses of middlemen, essentially taking fees and very clunky pipes that money has moved along. And it’s important to distinguish how this is actually functioning because there are two different aspects finance, there’s what we call retail finance, which is what consumers use and there’s wholesale, which is institution to institution, bank to bank.

Now, the good news is that retail finance actually has become quite a bit more efficient quite often. And some of that’s actually in reaction to the onset of cryptocurrencies. So, what you’re getting as a result of the rise of digital assets is that the traditional legacy systems in the retail sphere, actually kind of is getting its act together. And there’s studies of places like Singapore, where actually the ability to send money on your mobile phone has gone through the roof, because suddenly all the old companies are going, yikes, we don’t want to be knocked out by digital assets and competition. In the wholesale sphere, and it’s very important to stress this, when you’ve got big banks sending each other payments across borders around the world right now, that’s incredibly clunky, still. And that’s one reason why if you’re sitting in Ohio, and you want to make a payment to a friend in Delhi, it can end up taking a lot of time, a lot of cost to get that money across, because the wholesale pipes are clogged up.

And in fact, I was talking to the central bank governor in Brazil the other day, who was telling me that the joke in Brazil used to be that if you wanted to send money from San Paolo to London, it was faster to get on the plane and take the money in a bag than to actually use a clunky old fashioned wholesale pipes because there hadn’t been any competition before.

[music playing]

John Donvan:

More from Intelligence Squared U.S. when we return.

Welcome back to Intelligence Squared U.S. I’m John Donvan. Let’s get back to our debate. All right. So, Dante what I hear Gillian saying is that a digital dollar would allow for great, so much more efficiency and speed that it’s it makes the case almost on its own.

Dante Disparte:

Well, and then there is the public sector scorecard of digital transformation is checkered at best, siloed at worst, right.

And so, that, you know, just recently, the Europeans had to pass a law to try to get the big technology companies to make sure the plugs worked, and that all the peripherals for your iPhone would be conforming to a certain standard. And so, I do think we should be really, really candid and really honest about the point here is not one substituting the other but that even cross border money transmission rails, the networks that move the money is the real breakthrough innovation. Even you know, the former Treasury Secretary Hank Paulson, you know, was a little dismissive of this idea that the United States is going to lose ground and the dollar will be dethroned by a Chinese digital currency initiative unless we responded in kind, in no small measure because a digital currency is the sum of its parts. It’s the sum of its institutions. And so, a digital rendition of the Zimbabwean dollar would be exactly what the Zimbabwean dollar is a hyperinflationary digital currency not worth the code it’s printed on in the same way that the physical bills would not be worth the paper they’re printed on.

And so, that’s my challenge and I think what Gillian also underscores is, the breakthrough is about transmission of value in an always on internet native era. And in a hyper connected and globally connected global economy, we need to really contemplate rails. Because the SWIFT network, ACH networks, the credit card networks are all operating largely on technology stacks that have not had systems upgrades in quite a long time. And that’s —

John Donvan:

How far back do those systems go?

Dante Disparte:

I mean, it depends on the standard, but in some cases, up to 50 years or more, and they’re very vulnerable. They’re very vulnerable pipes that are fundamentally messaging systems, not actual value transfer systems. And so, things like settlement finality, using traditional payment rails take a long time. And you’re operating effectively in a correspondent banking network that is sending messages and payment instructions to one another, not actual money. And that’s the gap that we have to fill.

And so, I think of the central bank example that Gillian just gave of, you know, not only with getting on a plane with money, instead of sending it through traditional rails trigger a suspicious activity report but, in many cases, and in many corridors, it is the more efficient way of moving money. And it’s because the underlying rails, the transmission networks are not interoperable, they’re not internet native, and they haven’t had systems upgrades. And the last point I would make to Gillian’s great commentary about turkeys and competition, is that in most cases, we are at the mercy of duopolies at best, cross border payments, it’s typically one of two companies, the credit card networks is typically one of two companies, that dominate a lion’s share of money movement activity. And I think that’s a heck of a lot more important than the form factor of a digital currency itself or its economic backing.

John Donvan:

Again, to the essence of what a digital dollar would be. Gillian the evangelist of cryptocurrency were and are attracted to the whole concept because of the notion of decentralization of finance and anonymity and privacy, that there is no governing body overlooking what’s on the blockchain.

But a digital dollar created by the Fed, I think it’s already been put out there, that the Fed could literally technically know how everybody is spending. Every transaction that you make, they’ll have that information. And Newsweek published a sort of warning by an official of the Heartland Institute. And I do want to point out that the Heartland Institute is a libertarian think tank, which has also allied itself with the tobacco companies on the question of whether smoking is bad for you. They’ve come down on they were arguing that it wasn’t and also, that they questioned climate change. But they stated this argument very clearly in Newsweek, digital dollars could easily be tracked by banks, federal agencies and the Federal Reserve.

They could be programmed to control the kinds of things people can buy, how much could be purchased at a single time, or any number of other variables. Okay, that does sound like conspiracy talk stuff, but it does go to it seems the fact that there would be much less of the privacy and anonymity involved with the digital dollar than with the cryptocurrencies like Bitcoin or Ethereum. And I want to ask you is that a serious case to take on as it shouldn’t be regarded as serious?

Gillian Tett:

Well, here’s three points I want to make. Firstly, the fantastic thing about this entire development and debate is that it’s made people think about the underlying platforms and rails, as Dante says, on which money actually moves. And for the last 50 years, people have given it almost no thought, because let’s face it, talking about logistics, talking about financial plumbing is mind numbingly boring normally, for everybody, anybody who’s normal. I mean, you turn up at a party and say, you want to talk about the rails of finance, everyone’s going to fall asleep. Talking about money, yeah, we all love to talk about that, but not about the logistics of it.

And what this whole debate has done is concentrate minds on the logistics of money. And it really, really matters, partly because if the logistics are vulnerable, the whole system can collapse. No one thinks about plumbing in their house, until suddenly, there’s a blocked drain and a terrific stink and a mess, and then you really care about it. Otherwise, you ignore it. And —

John Donvan:

Gillian, that is your fourth fantastic metaphor in this conversation so far [laughs].

Gillian Tett:

It’s a mixed metaphor, I’m sorry. But it’s really serious, because you know, when there is a blocked pipe, people care, and we need to think about pipes right now, particularly at a time of geopolitical tension, because they could get attacked anytime soon. Point one. Point two is that the logistics and really matter. And the plumbing really matters. Because the question of who controls it, it’s very subtle, but critical. Now, in eight central bank currency, dollars, at the end of the day is to large degree not entirely, it’s largely the central bank that controls the creation of dollars.

In fact, commercial banks can control them as well through lending. But let’s leave that aside for the moment. One of the key things that Bitcoin and other decentralized currencies do is essentially let the crowd create the money. And the only constraint on how much money is created is how fast [unintelligible] can run and whether people do or do not actually track — trust that computer platforms. So, the control is in different hands. Now you can argue which is better or which is worse. I tend to think at the moment, given how rapidly this whole system is evolving and developing is that we need to have competition. And right now it’s no bad thing that actually if people think I do not trust the central bank at all, I hate the Fed, they can go off and use a Bitcoin or something like that. I do think we have to give consumers a level of choice about how much privacy they do or don’t want. Most people sign up for, say, social media platforms, even though they’re sacrificing a lot of privacy, because they like the convenience that is offered by those platforms.

Maybe people, some people would actually say, you know what, I don’t really care if the central bank has all my records on its own ledger. I actually liked the idea of a digital dollar. Maybe people won’t. But I think we actually should not be shutting off any options right now. Why don’t you let the market choose.

John Donvan:

Sort of in the way that another metaphor that some people are very uncomfortable with the fact of security cameras on the street and other people say I don’t care and it’s keeping others, us safe, I’m okay with that. But Dante, I want to take the same question to you. I mean, Gillian is saying that these concerns, the concerns raised in the sort of alarmist scenario, our laws can, you know, safeguards can be put in place so that the federal government if it’s issuing a digital dollar, and technically would have the ability to intervene in our lives because of that, won’t, that’s not really a really serious concern. Just wanted to take your take on it.

Dante Disparte:

Yeah. No, well, one you know, the good news is the Federal Reserve and its most recent paper on this topic reported out what is known as Project Hamilton, which is the Boston Feds particular experiment, looking at the technological capabilities necessary to have a central bank digital currency.

And what they’ve said are three things that I think should give those who are listening who might be afraid of the prospect, some degree of comfort, right? Number one, a central bank would have to be intermediated. Number two, a central bank would have to be privacy preserving, which I think opens up some serious questions about its form factor. And number three, it would have to be KYC’d. And so, you can imagine KYC is a term of art, meaning know your customer, and that the access to a central bank digital currency would have to have an individual identified and known. And so, you can see a tension between number two and number three. But that ultimately means it’s going to flow through the regulated financial system. And so, then the question becomes, then how will it produce better outcomes if it’s just taking the existing rails and making them slightly more efficient?

Because we have to remember the existing rails by design are competitive, by design are exclusive of one another. And, you know, to build on Gillian’s analogy of clogged pipes in your home, we suffered through this domestically with the advent of COVID-19 in the United States. So, up until recently, I sat on FEMA’s National Advisory Council. And we mobilized as a country more than $6 trillion of taxpayer funded money to everyone. And because the money couldn’t move an auditable near real time payment networks, we may have lost anywhere between $70 billion and $400 billion due to fraud and crimes of opportunity, because there was no auditability of how money moved, or we just used completely blunt force approaches, sending physical checks to everybody and the payroll protection program and so on. And so, that’s a function of a void of rails. It’s like building a high speed train, but not caring about the train network.

And so, that’s the missing link in the United States. Other countries have open banking systems, other countries and other regions like Europe have fast payment systems for interbank payments and mobility. But where I think we should be very concerned societally and I think it’s candidly anti democratic is when the central bank ultimately gets all the way down to the retail level of transaction, engagement and having digital wallets. And so, as an example, a digital, a postal banking experiment only had six total users on it recently. And so, I think the boundary of where does a free society want the public sector involved in money and their financial lives are pretty clear that we just don’t want these innovations at the retail level.

Gillian Tett:

But I’ll just say [unintelligible] firstly, if the prospect of this digital currency puts the fear of God into the existing legacy system, and makes it more efficient, that’s a win-win for consumers big time.

And I think the jury’s still out, it’s possible that the entire crypto revolutions main impact to humankind will be to make traditional financial legacy systems dramatically more efficient, belatedly. But the other point is that I don’t think we always know what consumers want, because I’ll give you one example going back to my cell phone again, when facial recognition technology was first mooted, about a decade ago, most and all opinion polls showed that most American consumers were so horrified by that concept, they wanted nothing to do with it. Today, a very large chunk of our smartphones use facial recognition technology to enable us to sign on to things and it’s quite possible that we’ll end up going down the Chinese route and using facial recognition technology, to pay for things and to get into buildings. And the reality is that consumers culture is shifting all the time. Culture does not exist, like a plastic Tupperware box, that you can stack up in a hierarchy of value to use another metaphor.

It’s more like a slow moving river where you have new currents coming in and changing. And yes, we should all make sure the population and voters understand very clearly what’s at stake in these privacy debates. But we can’t necessarily assume that we know how people are going to feel in 10-20 years’ time. And lastly, the very point that Dante said about how terrible the experience was of trying to distribute the COVID checks shows that it’s not an either/or, if there’d been a digital currency there, you know, that people have been using to some degree, we could have done it very, very efficiently very quickly. But it doesn’t mean that the rest of the payment systems necessarily die and wilt on the vine immediately any more than the fact that we have credit cards means that suddenly old fashioned cash and checks has suddenly vanished as well.

John Donvan:

I want to now look at one other word in the question that we’re raising, do we need a digital dollar? We haven’t talked a little bit about who we mean by we, and we have talked to — I’m using we in a different sense now. The three of us have talked about the term retail user has come up from time to time.

And I want to explore whether there are retail users who would be better off in a world with digital dollars as opposed to a system where right now you have to have a bank account and an ID card, et cetera. Dante, I guess I’m asking you to take on a question which might actually go argue against your no-position, but maybe not. Are there people who would be better off with a digital dollar?

Dante Disparte:

Well, there are and I think, you know, one of the big fig leaves that the digital currency world and the blockchain based finance world in the cryptocurrency world currently hides behind is this financial inclusion fig leaf Which is, the argument is very straightforward, right? That in a world in which you have 1.7 billion people with no formal access to the formal economy, for good reasons and bad, and the good ones are that if to be banked requires brick and mortar and a traditional sort of, you know, retail bank access, then —

John Donvan:

I need to stop you because of your using the word bank as a [inaudible] making a verb of it.

So, what do you mean by bank and unbanked? If you’re a banked person versus an unbanked person, who are you?

Dante Disparte:

That’s right. Well, think of it, well, better to better stated and maybe more crudely stated it’s to have margins of poverty and margins of access to the formal economy. So, to be banked, presumes and the FDIC produces great research on this every year, to be banked, presumes you have access to a series of formal banking and financial services, from low cost check cashing to low cost checking account access, and to over time, things that can accrue credit to you and lending and so on. So, that’s like the very simplistic definition of what does it mean to be banked.

But then you have in the COVID example is really dispositive. You have rural populations that were told on the one hand by the CDC and others to quarantine and stay at home, to then get a physical check that they would then have to go cash somewhere, physically, they didn’t just get an asset, they got a liability, because that liability ultimately needed to go to a physical location in order to get cashed. And so, the advent of digital currencies, private digital currencies, and faster payment systems, starts to remove some of the logistics again, borrowing Gillian’s I think great terminology for how money moves and how it reaches end users. And so, that’s like one big problem set, we have a planet with an enormous number of people who are perennially on the margins of the formal economy.

John Donvan:

Advantaged now how in a digital currency?

Dante Disparte:

They would be advantaged simply by the same way. And this is where it perhaps is too simplistic, but in the same way that if to have access to telephony hinged on antiquated fixed line infrastructure, you would have billions and billions of people all over the world who wouldn’t enjoy the revolution of mobile telephony, and now mobile internet.

And so, this is where this is a Cambrian explosion of innovation in banking and payments and finance is that armed with little more than an internet connected device, a smartphone, a basic phone, a basic Android phone, that device can now become a compliant payment endpoint. And that’s where this revolution is really starting to take on pretty big societal proportions. Something like 75 percent of all the merchants in the world are contemplating accepting digital currencies as a part of their retail payment experience. And so, that’s a pretty big flywheel that analogizes very closely to mobile money, and the mobile money experience we’ve seen in regions in Africa and countries like Kenya.

John Donvan:

But as the debater taking the no side in this argument, you’ve you said that all these benefits you just explained are something of a fig leaf.

Dante Disparte:

No. Well, so here the fig leaf is that the only actor in an economy that can deliver those social impacts are the public authorities is the thing I’m railing against, right, that because one of the arguments for central bank digital currencies is that you can have better forms of social money, helicopter money, and had we had it during COVID, this Fed could have magically parachuted funds directly to the end user —

John Donvan:

All right, well, Dante and Gillian, thank you so much, you helped us get through this with help of many metaphors and analogies and numerous references to plumbing and rails. But I think it helped make some of this abstract material concrete for us. So, I want to thank you both for helping us figure out do we need a digital dollar, yes or no? So, Dante, Gillian, thank you so much for joining us at Intelligence Squared.

Multiple Speakers:
Thank you.

John Donvan:

And for now, I’m John Donvan. And we will see you next time. The conversation you just heard is just a great example of why we do these debates, to hear two people who disagreed do so civilly, even to the point where they meaningfully agreed where that was useful and helpful to all of us understanding what this complex issue is about.

And also, we appreciated their predictions of the future, which we can check back on in the future. And we hope you are there with us when that happens. For now. I’m John Donvan. This is Intelligence Squared, and we’ll see you next time. Thank you for tuning into this episode of Intelligence Squared made possible by a generous grant from the Laura and Gary Lauder venture philanthropy fund as a nonprofit our work to combat extreme polarization through civil and respectful debate is generously funded by listeners like you, the Rosenkranz Foundation and friends of Intelligence Squared. Robert Rosenkranz is our chairman, Clea Conner is CEO, David Ariosto is head of editorial, Julia Melfi. Che O’Meara and Marlon Sandoval are our producers. Damon Whitmore is our radio producer, and I’m your host, John Donvan. We’ll see you next time.

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This transcript has been lightly edited for clarity. Please excuse any errors.