The former chairman of the CFTC led Accenture to guarantee that the digital dollar will be far behind?

Source of this article: Forbes  

Author: Ben Jesset

Compilation: Share Finance Neo

On January 16, Accenture, the world's largest listed consulting company, issued an official announcement saying that it had reached a cooperation with the former chairman of the US Commodity Exchange Commission (CFTC) J. Christopher (Chris) Giancarlo and launched the digital dollar project.

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It is understood that the Digital Dollar Project is a multi-stakeholder initiative designed to advance the exploration of the Central Bank Digital Currency (CBDC) in the United States.

Non-profit "Digital Dollar Foundation"

 

The report states that both the new foundation and Giancarlo's digital dollar projects are supported by global consulting giant Accenture PLC. Previously, Accenture has a record of innovative cooperation with central banks, including the Bank of Canada, the Monetary Authority of Singapore and the European Central Bank. It also recently signed an agreement with the Swedish Central Bank (the world's first central bank) to develop e-krona CBDC in a test environment.

Other founders of the Digital Dollar Foundation include former CFTC officials, Daniel Gorfine, who oversees financial technology research at the regulator, and Charles Giancarlo, Giancarlo's brother.

In October 2019, Chris Giancarlo and Gorfine co-authored a column in the Wall Street Journal stating that the United States needs to move to digital dollars.

In this opinion article, the two emphasized that countries around the world and social media platforms such as Facebook Libra are more advanced than the United States in launching digital currencies, so the United States may be left behind. In addition, these competing measures may weaken the strong position of the US dollar as a global reserve currency, and thus weaken the US influence on the international stage and weaken the prosperity that the United States enjoyed in the last century.

Chris Giancarlo said,

"Analog reserve currencies cannot meet the needs of the digital 21st century. Digital dollars will help the dollar withstand future shocks and allow individuals and global businesses to pay in dollars without time and space constraints."

The term "digital dollar" may be a bit misnomer. In short, apart from paper money, as long as the US dollar exists as an account balance in the computer records of today's financial institutions, they will be digitized.

Take an open and collaborative approach

 

It is understood that the purpose of the project is to encourage research and the public to discuss the potential advantages of digital dollars, convene thought leaders and participants in the private sector, and propose possible models to support the public sector. The project will develop a framework for practical steps that may be taken to establish a USD CBDC.

The Foundation recognizes that actions of this scale will involve the establishment of a broad base of support, which is why it plans to adopt an open and collaborative approach to designing and building the CBDC, seeking the participation of community stakeholders, and then providing participants' responses design.

The Digital Dollar Foundation announced that

"The project will explore design options and methods to create digital dollars through a review process, including stakeholder meetings, round-table discussions and open forums."

However, the foundation quickly dismissed claims that the CBDC would replace traditional U.S. currency forms, saying that

"The US dollar CBDC will represent a third form of currency, similar to paper money, backed by the Federal Reserve (hence being considered a liability). The goal of the CBDC is a portable, digital format that can be sent as easily as text."

Of course, the proposed CBDC here is very different from the previous JPM Coin launched by JP Morgan Chase. Martha Bennett is vice president and chief analyst at Forrester Analytics. For her, it is important to distinguish between the goals of the CBDC and the digital currency projects of commercial banks such as JPM Coin.

Bennett said: "By definition, CBDC has a different control mechanism from similar e-money initiatives initiated by JP Morgan Coin and Commercial Banks. Based on all the proposals I have seen so far, it will also retain the existing two-tier infrastructure without them. , The economy will stagnate.

Accenture joins public-private partnership

Although Accenture is a business organization, the consulting and implementation giant seems to be pouring significant time and resources into the foundation.

Of course, Accenture's motivations are not purely altruistic, as its participation in the foundation provides the company with a vantage point to cope with the biggest upheaval in the way American financial services have been operating in a century.

The company's role in the foundation gives it a strong foundation from which they can sell their work to a huge and growing market. For example, the company will be in a unique position to integrate CBDC into other blockchain-based plans with payment components. It can also learn from the foundation's experience and apply it to promote CBDC to 194 other countries around the world.

As most blockchain projects on the market involve payments, the consulting firm may work to help these projects connect their platforms to the digital dollar over the next decade. It's a long game, but the company has enough resources to wait for it to end. In fact, this is like the foundation of Libra. The major companies have laid out the crypto payment field in advance.

For Bennett, the foundation's public-private partnership model is encouraging.

Bennett stated:

"This is a welcome development and a much-needed development in many ways. One of the foundation's founders was a supervisor and the partnership with Accenture was a powerful combination. The foundation's founding members Brings the expertise, connections, solemnity, and credibility required by the industry, and Accenture not only has deep expertise in blockchain technology, but also works with regulators and banks in other countries to develop digital currencies and other central banks He has extensive experience in events. "

Although Bennett does not necessarily agree with the "Facebook / Libra" argument that the United States will be left behind by China, she thinks it is important for the United States to make its own voice.

Digital currency as programmable currency

David Treat, senior managing director of Accenture Consulting and head of global blockchain business, believes that it is time for money to catch up with today's digital world.

"We at Accenture have been working to make our digital world bigger, faster, and better, but money is not growing so fast. We can send emails to the world in an instant, and money needs to do the same. Thing. There has been no change in the physical form of the currency for thousands of years, nor has it changed in the electronic form for a decade.

Treat sees the potential of programmable digital currencies as a transformative development, and compares the difference between currency and food stamps to explain why. When both can be used to buy food, money has no inherent intelligence, and the latter has a set of rules, restrictions, and reports. This is the future of digital currency-because it becomes programmable and smart.

Treat explained that the foundation will first identify some basic components that the CBDC should include, as well as some core principles such as strong security and high availability. Since then, foundations can build more detailed designs around them, while consulting with stakeholders. At present, some work has begun, and some early work has been published on the foundation's website.

It is worth mentioning that a key core principle proposed by the foundation is to work within the scope of the existing two-tier financial system, instead of seeking to fundamentally redesign the financial flows of financial institutions today .

CBDC will not solve all problems

 

CBDC has been tested around the world, such as Canada. However, the result is mixed with a new statement that the technology cannot meet more complex aspects of the banking industry such as net settlements, credit and margin. Without these technologies, banks would not exist, but they are basically incompatible with blockchain technology.

Regarding this issue as an unreasonable expectation, the assumption that CBDC can achieve instant bilateral payments and settlements is unrealistic, as it is fundamentally incompatible with the way banks operate. In Treat's vision, CBDC will play a role downstream of financial alchemy. In this way, the old world and the new world can be integrated.

Financial institutions now have to allocate billions of dollars to prevent counterparties from reaching settlements. Data show that every $ 1 billion held in this way costs an institution about $ 11 million per year. With programmable digital currencies, however, most of the risk disappears, which means that banks only need to hold a smaller portion of reserves than before.

This is not just a theoretical point of view, it is now becoming a reality. In the U.S., financial infrastructure provider Paxos has recently received SEC approval and is preparing to provide a blockchain-based p2p settlement platform.

Like the CBDC, it uses digital currencies for settlement, but unlike the foundation, these digital currencies represent debt between banks and are not guaranteed by the Federal Reserve. There is no doubt that CBDC is the next step in the Paxos project. If the digital dollar can be realized, it will likely become one of the early adopters.

Treat continues to point out that the financial system using CBDC may be more dynamic than it is today. If the CBDC allows settlements to be completed in minutes instead of days, he envisions a model in which banks can pay more money to settle faster (this would have been more expensive because what you get from settlement Less benefits). Treat says:

"The dynamic risk pricing settlement window is exactly where it is headed. "

It is these pedantic, obscure terminology of financial services that give us a glimpse into how complicated it is to introduce CBDC. Even small changes in the structure of financial services can have ripple effects on the entire industry, leading to many unexpected consequences.

For Treat, this is the strength of the foundation's structure, as it will promote cooperation with the outside world by inviting experts such as economists into the foundation's tent, providing a place for debate on these esoteric but vital aspects.

challenge

 

Fundamentally reshaping a financial system that has not changed substantially for centuries is no easy task, especially when many different interests need to be considered-the public, regulators and financial institutions.

The foundation seems to accept the African proverb-"If you want to go fast, go alone, if you want to go far, go together."

But the risk is that the initiative could be in trouble because of too many competing voices. On the other hand, China's command and control has an advantage in advancing the CBDC because they do not have to build consensus.

Another challenge facing the foundation will be how to deal with Washington policy makers. Although the foundation claims that, in principle, digital dollars "will be completely covered by existing regulations that guide the Federal Reserve's currency issuance and circulation", but rulemakers need to be involved in this process.

Not only that, digital currency on a distributed ledger is a puzzling concept that takes time to fully understand. For busy politicians, paying due attention to this issue will be a challenge.

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