“Exploring a US Central Bank Digital Currency Through Pilot Projects”

 Hon. J. Christopher Giancarlo[1]

University of Zurich

International FinTech, InsurTech & Blockchain Forum

November 13, 2020


Hello. It is a pleasure to address the Third Annual International FinTech, InsurTech & Blockchain Forum at the esteemed University of Zurich.

I am grateful for this opportunity to share my views on the importance of exploring a US central bank digital currency, and why we should do it through real world pilot programs starting now.


Three Observations

 Let me begin with three key observations about U.S. financial markets from my time in Washington:

First, much of America’s physical infrastructure – its bridges, tunnels, airports and mass transit systems built in the last century – have been allowed to age, deteriorate and become obsolete in the current one.

Sadly, the same is true about too much of financial infrastructure in the United States and, indeed, much of the developed Western economies.

Systems for payment and settlement, shareholder and proxy voting, investor access and disclosure, and indeed, financial system regulatory oversight – that were once state of the art and global models in the twentieth century – have fallen behind the times and, in some cases, embarrassingly so in the twenty-first century.

This aging financial system infrastructure puts the developed economies at a competitive economic disadvantage to economies like China that are building new financial infrastructure from scratch using new twenty-first century digital technology.

For example, it typically takes days in the US to settle and clear retail bank transfers. In many other countries it takes minutes, if not seconds. It also takes days to settle securities transactions and weeks to obtain land title insurance.

And, nothing reveals the limits of our existing financial system more starkly than the US government’s initial response to the COVID-19 pandemic, in which tens of millions of Americans had to wait a month or more to receive relief payments by paper check, while over a million payments were made to people who were dead.

A second observation is these aged financial and regulatory systems are struggling to adapt to the coming wave of digitization, the digitization of things of value. This transformation is what some call the Internet of value.

Now, the first Internet era is considered the Internet of information. Wikipedia is an example of that first wave, a massive decentralized, online reference authority composed collaboratively by volunteers who share knowledge and write peer-reviewed entries without pay.

That first Internet wave is being superseded by the next wave, the “Internet of Things”, in which everything from assembly lines to refrigerators will be connected to the internet. That wave will soon be followed by the next wave, the Internet of Value.

In this wave, things of value, like energy, agricultural and mineral commodities, contracts, stock certificates, land records and property titles, cultural assets like music and art and personal assets votes in an election, even personal identities can be stored, managed, transacted and moved around in a secure private way from person to person, without third-party intermediaries.

This next wave of the Internet also has the potential to shift the medium of trust from large centrally-managed institutions with legal authority to person to person digital handshakes powered by cryptography, tokenization, shared ledgers and a network of personal computers and smart phones.

I believe that nowhere will the Internet of Value have a more dramatic impact than in the area of money.

Sir Jon Cunliffe, Deputy Governor of the Bank of England said to me recently that looking at history it seemed that every several generations society re-asks the question, “What is money, after all?” He thinks this new wave of the Internet is causing society to ask that question anew.

The birth of bitcoin in the wake of the 2009 financial crisis was the first iteration of the Internet of value in the form of a digital asset. Since then, the private sector has launched thousands of budding non-sovereign crypto currencies of lesser or greater promise.

My third observation upon leaving government was that, if we act now, I believe we can harness this wave of innovation for greater financial inclusion, capital and operational efficiency, and economic growth for generations to come.

If we do not act, however, this coming wave of the internet will lay bare the shortcomings of the West’s aged, analog financial systems.


The Digital Dollar Project

We launched the Digital Dollar Project at the World Economic Forum in Davos, Switzerland earlier this year.

The Digital Dollar Project is a think tank devoted to the public discussion of the merits of a tokenized form of the United States “central bank digital currency” (CBDC) or, what we termed a “Digital Dollar.” The Project is a partnership between Accenture, the global consultancy firm, and the Digital Dollar Foundation, a not-for-profit institution. 

The Project is NOT a commercial venture. We have no business model to promote. Our mission is entirely one of serving the public interest. The Foundation is self-funded. It turned to Accenture because of Accenture’s involvement in almost every CBDC project around the world. And Accenture agreed to provide its services to the Project on a strictly pro-bono basis.

The Project’s mission is to encourage research and public discussion on the advantages and challenges of a digital dollar, to convene private sector thought leaders and actors and to propose possible models to support the public sector.

The Project looks to help formulate a framework for potential, practical steps that can be taken to establish a Dollar CBDC. We advocate for the launch of a series of real world, pilot programs to explore the issues and complexities of a US CBDC.

The Digital Dollar Project has assembled an extraordinarily experienced advisory board in order to bring many perspectives and professional disciples to bear. The Board includes economists, business leaders, technologists, innovators, lawyers, academics, consumer advocates, and human rights experts. It is fully bipartisan.

The Project looks to help formulate a framework for potential, practical steps that can be taken to establish a US CBDC. The Project actively engages with the US Congress, senior administration officials and policy bodies in the US and abroad.

Now, when we refer to a US Dollar CBDC, we use the phrase “Digital Dollar.” We chose that title because it is catchy. However, it is not entirely accurate. The Dollar is already digital in the form of electronic bank accounts.

But, what we are talking about is tokenized fiat money, not accounts based money. What is the difference? Well, allow me to take you on a brief, short history of money.


Brief History Of Money

Money has evolved over the span of human civilization. Initially trade was through barter: a chicken for a clay pot. However, what does a society do when a person wants to trade a blanket, but doesn’t need a clay pot in return?

The answer was a token that society recognized as representing value and could be traded for any good whether a clay pot, a chicken or a blanket. The first token may have been shells or beads. It evolved to things that carried some inherent value such as salt, which was currency of the Roman army from which the word “salary” derives or coins minted from precious metals like silver and gold.

In more recent times, tokens of currency were based on intangible items of little intrinsic value such as paper or, today, polymer. As economies evolve into the future, so will their tokens.

The physical paper dollars in circulation today are tokens. They are tokens that are legal tender, meaning that US commercial entities are required to accept them as a form of payment. They enjoy the full faith and credit of the United States, meaning the US government guarantees their acceptance by banking institutions and conversion into accounts based money.

In comparison, the Dollars that can be spent by use of credit and debit cards and money drawn with a check are account-based money. Most money used in the global economy is account-based. They are obligations of the financial institutions that support them.

A major technological distinction between token-based and account-based money is the process of verification.

With token-based money, verification is primarily performed by the recipient confirming that the token is authentic and not counterfeit. On the other hand, accounts-based money requires third-party authentication of the identity of both parties to the transaction and the adequacy of funds in the transferor’s account.

I often explain the difference by pointing out that when one uses Zelle and Venmo, you are still using accounts based money. The transaction is a series of messages instructing movement by third parties of accounts based money. When you swipe your phone against a reader for an Apple Pay transaction, it is another series of messages. You are not actually transferring value. Some commercial enterprise somewhere is doing that upon receipt of those messages and – here’s the issue – collecting a fee to do so.

 With a Digital Dollar, we are talking about swiping your mobile device and actually moving real money from you to someone else immediately, just like cash, without any messages or intermediaries and, quite plausibly, without any fee. And, quite immediately, without any loss of time.

Today, you can share a photo or a video with someone around the world in a second, but it takes days if not weeks to send a few hundred dollars – and at a cost of 7-17%.

A digital dollar would make sending money as simple, as immediate and as cost free as sending a text message.


A Champion Model For US CBDC

At the end of May 2020, the Digital Dollar Project released its initial white paper. You can access it at digitaldollarproject.org. The White Paper outlined a successful model for a tokenized digital dollar that has the same legal status as physical currency. It provides details on how we view the structure, operation and benefits of a digital dollar.

Our “champion model” would be a tokenized form of the US dollar enjoying the full faith and credit of the US Government operating alongside existing forms of money. Its issuance, distribution and redemption would take place just as cash does today: issued by the Federal Reserve to domestic banks or regulated entities against reserves.

Banks would distribute Digital Dollars to domestic end-users’ digital wallets against bank deposits and against collateral to non-resident banks. For consumers, digital wallets would offer essential payment functionalities integrated with existing banking services.

Payments at points of sale could still be conducted through conventional terminals or fully contactless solutions. Only, with digital dollars, the terminals would transfer actual value peer to peer not messages. Regulated entities would extend such wallets to their customers through existing outlets for mobile phone applications. For unbanked end-users, wallet services could come pre-loaded on mobile phones.

Our Digital Dollar proposal is not antithetical to other virtual currency efforts whether commercial like Libra or decentralized like Bitcoin.

Our proposal is also monetary policy neutral. We take no view on issues of money supply. A digital dollar is a policy tool, not a policy expression.

Our proposal is also sensitive to rights to financial privacy. We must get the balance right between individual privacy and law enforcement. This is especially so in light of the US Constitution’s restrictions on government infringement of rights of privacy.

Our proposal posits that the many technology decisions and design choices should be driven by functional needs. Technological form should follow public policy function.


Exploring A Digital Dollar Through Pilot Projects

Earlier this year, I had the honor to represent the Digital Dollar Project in testimony before three US congressional committees. I made the case for the U.S. Treasury and the Federal Reserve to test and explore a U.S. CBDC working with the private sector in a series of pilot projects. We believe this is the right approach to exploring key areas of concern such as: privacy, cyber resilience, financial inclusion, and interoperability, to mention a few.

In September, the Digital Dollar Project Digital Dollar Project published initial proposals for nine distinct pilot programs to identify practical opportunities to test and evaluate key features of a U.S. Central Bank Digital Currency (CBDC) or “digital dollar.”

The pilot programs are designed to explore how a U.S. CBDC could serve important public policy goals while addressing specific challenges faced by different economic stakeholders, including consumers, businesses, financial institutions, and FinTechs.

The proposed pilots reflect input from the Project’s distinguished advisory group. They result from discussions, research and events that have taken place over the past ten months, as the progression of CBDCs has transitioned from “If” to “How” and “When.”

The Digital Dollar Project is focused on diving deeper into challenges faced by different constituent groups, including individuals, businesses, and financial market infrastructure providers. A pilot program, for example, could test the treasury management and security benefits for small businesses over physical cash handling, as well as the cost benefits from minimizing card processing fees and longer settlement times. A pilot program could work with retailers and card networks to explore whether a CBDC could potentially be more cost effective, efficient, convenient, secure, or inclusive than account-based alternatives. Another area for examination would be the possibility of developing low-cost digital wallets as on-ramps to bank-lite products for un- and underbanked populations.

While the rapid progress of CBDC development and exploration by the People’s Bank of China, the European Central Bank, the Banque de France and the Bank for International Settlements inform the proposed pilots, the Project is focused on initiating experiments and collecting U.S.-centric empirical evidence appropriate to the uniqueness of the American landscape and the importance of the dollar as the world reserve currency.

The Project seeks to solicit feedback, engagement and interest in the pilot proposals. It should be expected that as pilots are further developed and initiated a broader set of requirements will be gathered to address the challenges of specific constituents. I invite you to examine our proposed pilot programs on our website: DigitalDollarProject.


Conclusion: It Is Time To Modernize The Dollar

The Digital Dollar Project believes that the ultimate reason the US should explore a US CBDC is to modernize the Dollar itself, not because others are doing it, but because modernization of economic infrastructure is a good all by itself.

We should modernize the US Dollar for the same reason we must modernize all economic and commercial infrastructure – to keep pace and benefit from advanced, new architectures of technology and innovation. It is about less friction, less cost, more inclusion, better policy tools. It is about building new digital monetary architecture alongside an old analog foundation.

We should modernize the Dollar to make sure that the values that are enshrined in the Dollar today – values like freedom of speech, individual privacy, free enterprise and free capital markets – are encoded in the digital future of money.

The time has come to explore the opportunities and challenges of a US CBDC through well-crafted and carefully executed pilot programs conducted in thoughtful partnership between the public and private sectors in the best tradition of American innovation.

The time has come to explore the Digital Dollar. 


[1] Senior Counsel, Willkie Farr & Gallagher: Former Chairman, US Commodity Futures Trading Commission.