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JC Giancarlo Remarks:

Innovate Finance ‘20


Davos January 22, 2020

The Digital Dollar Project


Good afternoon.

It is a pleasure to be with you. Thank you to Innovate


Finance for hosting me this afternoon to speak to you.

I want to talk about our announcement a few days ago of the


Digital Dollar Project – a partnership between the Digital Dollar
Foundation and Accenture to advance exploration of a US
Central Bank Digital Currency.

As we announced, the purpose of the Digital Dollar Project is


to:

• convene private sector thought leaders and actors,


• consider the potential advantages of a digital dollar, and
• come up with possible implementation frameworks to
support the public sector.

Today, I want to share a little bit more about why we have


launched the Project, what we are trying to do and where we
intend to go with it.

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Last July, I completed a five year term of service on the US
Commodity Futures Trading Commission – the world’s only,
derivatives exclusive, market regulator.

As Chairman and chief executive, I was in a unique position


to experience how the 20th Century structures of our financial
markets and regulation were challenged by the profoundly
transformational nature of the contemporary 21st Century’s
digitization of value.

To address that challenge, the CFTC utilized a four-part


approach to technological innovation:

1. Adopting an exponential growth mindset.


2. Increasing quantitative data-based market intelligence.
3. Creating an inner-agency market technology stakeholder:
LabCFTC.
4. Engaging actively and intelligently with innovators.

I believe this four part approach worked quite well. It earned


the CFTC a global reputation as a smart and responsive regulator
at a time of rapid market transformation.

Since returning to the private sector, I have had time for


observation and reflection.

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It strikes me that nowhere is the encounter between 20th
Century financial systems and 21st Century digital technology
more apparent than in central bank money and its global
transmission.

Since Western Union’s first use of telegraph networks to


send money in 1871, the basic process of sending money – even
with the development of digital technologies -- hasn’t changed
much.

A message is sent via a network containing the payment


information. A bank is required, on both sides with reciprocal
accounts or other abilities, to fund the transaction.

The process can be slow, expensive, and uncertain,


particularly if international legs of the transaction are required
while foreign exchange rates fluctuate.

While the process of sending money has been slow to


change, the demand for currencies with added functionality to
support faster, more certain, accessible, and complex payments
has accelerated.

Central banks are paying attention: More than two-thirds of


central banks have been investigating new payment applications.
Many of these banks are emerging as new potential innovators

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applying novel technologies, including tokenization, to offer new
possibilities to represent and transfer value.

For example, the Riksbank, the Central Bank of Sweden, is


now the first among leading central banks to have decided to test
the deployment of a digital currency (e-krona) in a pilot
environment.

China has said that it is making progress in its plan to


introduce a central bank issued digital currency in the near term.

And, just yesterday, a group of important central banks


including the Bank of England, the European Central Bank, Bank
of Japan, Bank of Canada, the Swiss National Bank and the
Riksbank announced that they will work together to explore the
how, what and why of CBDC.

But central banks are not the only ones exploring ways to
capitalize on the demand for new currency functionalities.

For example, the Facebook-supported Libra proposal


highlights that private, non-state stable coins may play an
important role as a borderless payment medium.

Similarly, other initiatives, including digital coins from


Goldman Sachs, JP Morgan and Walmart, seek to offer new

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payment technology and functionality that existing national
currencies currently do not provide.

These private sector developments are important. They help


advance innovation. They are also causing us to take a new and
more clear eyed view of money – especially the efficacy of
traditional analogue fiat money in the new digital economy.

The fact of the matter is that U.S. central bank money has
seen few, if any, innovations since the printing of bank notes
during the nineteenth century. Its circulation has remained strictly
local and its functionalities limited.

That’s why we have launched the Digital Dollar Project.

We seek to encourage the next major innovation in the U.S.


currency: a tokenized fiat currency issued by the Federal Reserve
System. A new digital form of the Dollar that, alongside traditional
fiat coins, bank notes and reserves, would enjoy the full faith and
credit of the U.S. government as central bank money.

A digital dollar would serve the emerging digital financial


market infrastructure.

A new, digital Dollar would be portable and sent as easily as


a text.

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It would thereby allow settlement irrespective of space and
time.

It would enhance confidence for conducting digital payment


transactions. It would broaden scope, diversification and
resilience in dollar payments.

A digital dollar issued by the Fed would enhance scope,


access, diversification and resilience in dollar payments. It would
support retail, wholesale and international payment use-cases.

At present, on-line retail payments cannot be conducted in


central bank money.

A digital dollar would offer a new choice for digital


transactions by offering instantaneous peer-to-peer payments. It
would provide diversification of payment rails providing greater
autonomy, especially in times of heightened financial distress.

A digital dollar would be distributed to the end-user through


commercial banks and trusted payment intermediaries and offer
additional mechanisms to ensure and facilitate financial inclusion.

Wholesale payments currently rest on national payment


systems. They are normally conducted through inter-bank
clearance using central bank money to settle securities and other
large value payments.

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The important role of central bank money to conduct large
value payment transactions implies that access to central bank
money has important distributive effects.

A digital dollar would offer more diversified access to large


value payments and support the emergence of digital financial
market infrastructures.

Today, international payments cannot be conducted digitally


in U.S. dollars.

A digital dollar would allow establishment of more direct


monetary relations, reduce risks, address persistent deficiencies
of the existing correspondent banking model, enhance
competition in international payments and advance financial
market integration.

The use of a digital dollar in cross-border and offshore


transactions would allow making digital payments in central bank
money for remittances and large value payments, including the
possibility to conduct offshore securities settlement.

The importance of the U.S. dollar in international


transactions is clear—it continues to represent more than three
fifths of central banks’ foreign exchange reserves.

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In no other area will innovation be more beneficial for dollar
users, and nowhere will changes to the dollar as a settlement
medium be felt more than in the international domain.

Challenges

So, what are some of the challenges?

Without doubt, many central banks have remained cautious


about the adoption of CBDC.

In part, this rests on uncertainty of the effect of CBDC on a


central bank’s national financial system and the national
economy.

It also reflects reasonable concern about whether CBDC


may cause some crowding out of commercial bank monies. There
are additional concerns around privacy and security.

Wider access to a digital form of central bank money may


also be seen with some trepidation although it is already common
with bank notes.

While concerns about fraud and money laundering can be


mitigated by channeling a digital dollar through the U.S. banking
system, offshore use of a digital dollar may require additional
safeguards.

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The possible adoption of digital money by central banks
outside the U.S. is considered to be in large part motivated by
reducing reliance on the dollar in international transactions.

The adoption of a digital dollar in the U.S. is seen as critical


to a possible orderly recalibration of the dollar’s attractiveness
relative to other digital currencies to support stable international
monetary conditions.

Project Team

For all these reasons and to address these concerns, I have


partnered in the launch of the Digital Dollar Project.

It is, as I have said, a private sector effort to catalyze


research and public discussion on the potential advantages and
challenges of a tokenized US central bank fiat currency – what we
call a “digital Dollar”.

I recently formed the Digital Dollar Foundation. My co-


founders are Daniel Gorfine, the CFTC’s first Chief Innovation
Officer, and my brother Charlie Giancarlo, a veteran Silicon Valley
entrepreneur, investor, and chief executive.

The foundation is a not-for-profit enterprise intended to


advance public discussion and education about the efficacy of a
digital dollar.

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Together, the Foundation and Accenture, one of the true
global leaders in CBDC advancement, have formed the “Digital
Dollar Project.” Our collaboration is not a commercial enterprise,
but a service in the public interest.

• The Project will study potential avenues to advance U.S. digital


dollar tokenization and related implications on the U.S. and
global economic and financial systems.

• It will encourage research and public discussion on the


potential advantages of a digital dollar, convene private sector
thought leaders and actors, and propose possible models to
support the public sector.

• It will develop a framework for potential, practical steps that can


be taken to establish a dollar CBDC.

• It will further explore design options and approaches for


creating a digital dollar through a deliberative process,
including stakeholder meetings, roundtable discussions and
open forums.

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• It will carefully consider core governmental interests, support
for existing Federal Reserve related projects, and focus on key
guiding principles.

• The Project will ultimately seek to identify options for a CBDC


solution that enhance monetary policy effectiveness and
financial stability.

• It will consider needed scalability, security, and privacy in retail,


wholesale, and international payments, while ensuring
integration with existing financial infrastructures.

• And, perhaps, most importantly, it will proceed thoughtfully,


deliberately and cautiously. Getting things right is our goal, not
doing things quickly.

Key Principles

So, what is the mission of the Digital Dollar Project?

The Project aims to offer solutions that can be implemented,


including through phases and careful testing, and meet existing
performance criteria of U.S. financial infrastructure. Introduction
may be partial and could be limited to discrete pilots before
broadly rolling out across all use cases.

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Such an introduction would adhere to the following key
principles:

1. Ensure real-world and inclusive benefits of – and subsequently


make broadly available -- a digital dollar that will constitute a
liability of the Fed and form an integral part of the monetary
base.

2. Preserve effectiveness of monetary policy and financial


stability, and future-proof the greenback.

3. Ensure requisite privacy and security in payments is


preserved.

4. Adhere to existing Know Your Customer/Anti-Money


Laundering (KYC/AML) requirements amid distribution through
regulated payment intermediaries and banks, preserving the
two-tiered banking system.

5. Facilitate special provisions to on-board parts of the population


that are being digitally excluded.

6. Enhance economic policy insights through the transparency of


digital payments.

7. Offer comprehensive and seamless integration with the


financial infrastructure including through connectivity to

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existing core banking and payment functions, custody
solutions, and electronic wallets.

8. Develop best-in-class technology to support needed digital


currency functionalities.

9. Collaborate across public and private stakeholders, both


leveraging and facilitating private sector dynamism and
innovation, and finally,

10. Offer flexible development and testing of project elements.

Because of the special global status of the dollar any


alteration in its issuance provisions need to be assessed and
tested with utmost care. Intent and implications must be clearly
articulated and understood to guide market expectations about
the possible effects of digital dollar adoption. The international
role of the dollar may imply that consultation and collaboration
with international actors should be considered.

One of the Project’s first steps will be to assemble a core


multi-disciplinary team to consider initial designs and proposals
for a digital dollar as the first phase of a multi-phase journey.

The team will engage with economists, technologists,


lawyers, KYC specialists, academics, consumer advocacy
groups, human rights experts, and ethicists.

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Over the next several months the team will consider
potential designs and proposals along with a multi-step plan to
pilot, test, learn, and enhance needed digital dollar capability.

The pace and direction of the program will be determined by


a governing body that will be proposed along with the completion
of the first phase of work.

At the end of the first phase, the team intends to present its
findings to key stakeholder groups and policymakers and begin
consideration of possible future phases to expand the pilot and
formalize a broader approach.

For more information about the Digital Dollar Project, please


see DigitalDollarProject.org.

CONCLUSION

So, drawing to a close, that is the Digital Dollar Project and


that is what we are trying to do:

• convene private sector thought leaders and actors,


• consider the potential advantages of a US CBDC, and
• come up with possible implementation frameworks to
support the public sector in creating a true US Digital Dollar.

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I thank you for your interest

I welcome your participation

And I am grateful for your time this afternoon.

I will be pleased to take your questions.

END

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