Will Digital Dollar Stablecoins & CBDC Co-Exist?

The rapid rise of digital dollar stablecoins has been paralleled by accelerating interest from central bankers on the role and possibilities of Central Bank Digital Currencies (CBDC). To some in the industry, these are viewed as at odds with one another, to others these are ultimately two sides of the same coin, converging trends that will emerge through broader public sector and private sector collaboration in the coming years and decade ahead.

No matter, everyone seems to agree that digital dollars and digital currency more broadly are the future of electronic money and the broader global financial system. How will these two phenomenon interact, compete or simply just co-exist?

On this week's Money Movement we're joined by Visa's Head of Crypto, Cuy Sheffield; Neha Narula, the Director of MIT's Digital Currency Initiative, an institute leading research and development in crypto, digital currency and now CBDC models; and Robert Bench, AVP at the Federal Reserve Bank in Boston, and a key contributor and collaborator on the future of digital currency with the Federal Reserve.

Jeremy Allaire: [00:12:50] I'm Jeremy Allaire. And welcome to the Money Movement, a show where we explore the issues and ideas driving this brave new world of digital currency and blockchains. Today, we're going to be talking about digital dollars, Stablecoins and central bank digital currencies. We've seen this year in particular, but certainly over the past years, significant proliferation in digital dollar stablecoins. We know new digital dollars stablecoins associated with things like Libra are emerging. And this has really been a very, very fast moving part of the market. A regulatory frameworks emerging for these. And really all of these are fundamentally private sector issued and operated technologies, although increasingly leading digital. Our stablecoins are operating through broader arrangements to use a phrase that the Financial Stability Board has used for a global stablecoin arrangements, things like center consortium, Libra association and the like that have multiple stakeholders and are seeking to set standards. And at the same time, both the topic and the substance of central bank digital currency has also been emerging again for a host of reasons. Si Si USDC has emerged in part as a reaction to the private sector, an Internet led innovations of digital currencies. It's emerged because while frankly some of the largest economies in the world are actively in the process of operationalizing new central bank digital currencies. This is part of this broader macro environment of the diminishment in the use of cash as a product from central banks, desires for continued payment system innovation, improving financial inclusion, broadening and supporting cross-border transactions. All of these as as factors driving the increased interest in CBD. See, now some are saying that there really can only be one digital currency dollar or one digital yen or pick your currency, and that it's not really the role of the private sector to issue money. If you view Stablecoins as private sector issued money, others are saying that digital dollar stablecoins are fundamentally a payment system innovation and that the private sector has led in this field for decades. In fact, even longer and that standards and regulations and ultimately connectivity to central banks and their balance sheets can give us the best of both worlds. [00:15:45][174.5]
Jeremy Allaire: [00:15:46] I'm really excited today to explore these issues on the money movement. We are joined by Visa's head of crypto Cuy Sheffield, Neha Narula, the director of MITs Digital Currency Initiative, which is an institute that has been leading research and development in crypto digital currency and now central bank digital currency models. And Robert Bench, a.k.a. Bob Bench, AVP at the Federal Reserve Bank of Boston and a key contributor and collaborator on the future of digital currency with the Federal Reserve. Welcome, everyone, to be here. Thank you. [00:16:29][43.1]
Jeremy Allaire: [00:16:31] Nice to see you all. So cool. I think I'm trying to set the stage a little bit. There's a lot we can talk about, and it's really a pleasure to have each of you who I think bring really profound perspective on on these topics. But let's just get started with with some quick introductions and kind of what what brings you to the subject matter. And then we'll dove in. Maybe we'll start in the upper left, or at least for me, the upper left. With that, we've got. [00:17:01][29.5]
Cuy Sheffield: [00:17:03] Thanks, Sherry. I'm Guy Sheffield, I'm on the Global Fintech product team at Visa, where I lead our crypto products. So really excited to explore these issues. [00:17:13][10.0]
Jeremy Allaire: [00:17:15] Excellent. Neha. [00:17:16][0.5]
Neha Narula: [00:17:18] Hi, everyone, my name is Neha Narula and I'm the director of the Digital Currency Initiative, which is based out of the M.I.T. Media Lab. We focus on cryptocurrency and digital currency research and technology. [00:17:29][11.0]
Jeremy Allaire: [00:17:32] Excellent. Bob. [00:17:33][0.8]
Robert Bench: [00:17:34] Bob. Bob Bench. I'm an AVP at the Federal Reserve Bank of Boston and our team works on general purpose research and exploratory applied prototypes for CBDCs. [00:17:45][10.6]
Jeremy Allaire: [00:17:47] Excellent. That sounds it sounds cool. We're going to dig into what that means here. So actually, maybe maybe we'll start with with with you, Bob. [00:17:57][10.3]
Jeremy Allaire: [00:17:57] And I remember at one point a meeting I had at the Federal Reserve in the not too distant past. And I met someone who whose title was product manager for cash. And I thought, that's pretty cool. There's a product manager for cash. And Cash is a product of the central bank. And most people don't really think of it that way. Like, you know, we've got products that we sell as companies. But central banks have a product is called cash. So what's the role of cash as a product in the United States? And then, you know, how might that inform how the Fed thinks about digital cash? [00:18:36][38.3]
Robert Bench: [00:18:37] Yeah, that's that's a great question. And I was surprised to when I came to the Fed from Circle. Right. And, you know, we had a lot of kind of product questions that Circles great PMs thought about the Fed PMs, think the same way. What do our customers need? What's their use case? How do we make this easier for them to use? More accessible? I think what just currency generally right for a currencies goal is to be a unit of account, a medium of exchange and a store of value and cash being the original form or currency here in the US. That's what we wanted to be first and foremost in our cash office is really great at knowing their product and knowing their customers. So what? What is our product? Right. So there's about two trillion of our product out there right in us of 20 trillion dollar money supply of that two trillion dollars. We have about one point four trillion or so of that. That's hundreds. A decent amount of that which is overseas. And then the remaining is smaller denominations. Our economists also and product officers also understand how that money moves, where it moves and why it's moving, where it where it is. And so when we think about trying to build a cash alternative, certainly not a cash replacement, but what would a prototype cash alternative look like? One of the key questions for us is always thinking more medium of exchange or are we thinking more store of value? And that's one of the critical questions that we needed to think about and bring in the digital currency initiative at M.I.T. to help us think about, because we think that you can weigh the technology to be more focused on store value. So having a much more secure flat form, or you can have it much more focused on a medium exchange which may require higher throughput and faster settlement. And as you know, Jeremy, those are really important technical tradeoffs. And and so when we think about what's the goal, potential goal of a prototype GBC, BTC is always looking for people to have something to store and security the ultimate concern or do we need to be fast? Right. So you can get a cup of coffee very quickly. And that's important tradeoff in why working with folks at M.I.T., DCI is so important to get the best answers in front of policymakers. [00:20:51][134.1]
Jeremy Allaire: [00:20:53] It's it's it's great perspective. [00:20:55][1.4]
Jeremy Allaire: [00:20:55] And this is obviously affects the broader cryptocurrency industry as people think about these tradeoffs between security, scalability and access and access might be thought of as decentralization or sort of who can participate. And there's all this all play off each other, obviously. And it's it's cool to hear people at the Fed thinking about that. So that's awesome. Maybe a related a related question, Kai, which I'll I'll I'll direct to you, which is, you know, when when I think when people think about Visa and the vision of Visa, you even can here it is, this sort of building a cashless society. [00:21:33][37.8]
Jeremy Allaire: [00:21:35] And in some ways, Visa represents for for much of the mainstream world this move from analog to electronic money, which has happened over over decades. And Visa's really led the way globally on that. And, you know, I think now clearly Visa and and you in particular are focused on cryptocurrency, digital cash models, the future. How do you think about digital cash in relation to historical electronic money? [00:22:05][30.5]
Cuy Sheffield: [00:22:07] Yes. The foundation of a visa was built on the electronic movement of money decade. Go on Dee Hock was talking about how your money would become alpha numeric data that can move across the world at the speed of light. And so we see in digital currencies and they represent an evolution of money with these new forms of cryptographic bear assets. And, you know, as money evolves, we think it's important for visas, network and solutions to evolve with it, to ensure that new forms of money can be transferred in a secure or inconvenient manner. And so we're seeing increasing interest from clients across the world looking to utilize digital currencies in new payment forms. And so, given this interest, you know, we want to help to shape and support the role that digital currency can play within the existing payments ecosystem. [00:23:14][66.8]
Jeremy Allaire: [00:23:15] Yeah, that makes a lot of sense. And I think we'll come back to some of the some of those issues. This sort of where the boundaries of digital cash, electronic money, payment systems. You know, it's sort of. [00:23:28][12.6]
Jeremy Allaire: [00:23:28] And the interesting thing about this space is that it all kind of is one big soup as well. I know you've thought a lot about these tradeoffs of security, scalability, decentralization. I mean, those are like fundamental things that I know have been work that you and your colleagues have have looked at for, well, for a long time at DCI. I'd love to just hear your thoughts on those trade offs as it relates to this specific prospective of of a digital cash product, whether it's private sector or public, private or public altogether. [00:24:08][39.5]
Neha Narula: [00:24:10] Yeah, they sure me. You know, I think and we've all been reiterating that security is paramount, right? If payment systems break, if monetary policy goes awry, that has real ramifications on people's lives. They can't buy food. They can't buy medicine. They can't eat. They can't get paid. And, you know, we're seeing some of these things now with COVID as it's taking time for stimulus checks to get mailed out. Things like that. So security, reliability, stability. That's priority number one with a digital cash system. I mean, I and I'm sure, you know, the folks at Visa think about this all the time. You know, I think we all have this vision of this really great future where we have money work the same way that information works now digitally, where we can program with it, where we can encapsulate it, we can feed it into apps. We have these open API, things like that. I think we're all working towards that future. But we have to remember that, you know, none of that works without the security, without the underlying stable system. And a lot of the work that we do at DCI is really thinking very carefully and deeply about security. What are the different ways that things could break all the way up and down the stack from the hardware on your machine to the operating system, to the libraries, the compilers you're using to build the code? How come back doors get into that? You know, we have to be very paranoid and have to think very carefully about the security systems. And, you know, I also think it's worth remembering that, you know, this sort of the at least the cryptocurrency revolution started with Bitcoin about twelve, eleven, twelve years ago. That's not actually that long. You know, these systems have not been around for that long and they're brand new cryptographic and distributed systems protocols. And those things take a while to harden and it takes a while to bang on those things and make sure that they are correct and that they're not going to fail in unexpected ways. [00:26:05][115.3]
Jeremy Allaire: [00:26:06] Yeah, I mean, this this is it touches on a lot of things, you know. Open source is sort of. And really the I think a lot of the decentralization movement and open source software, the cathedral and the bazaar, the kind of famous essay that that looks at, how do you crowdsource the best, the best, the most secure code is the code that's most open and most transparent. And there's a real desire to kind of experiment out in the open and to iterate out in the open and to leverage that intense the intensity of peer review that is the real world on these things. And so, I mean, the Internet sort of evolved that way. And and certainly I can remember, you know, first generation Internet, you say, hey, you're gonna you're going to put a piece of software, you're gonna be able to put a word processor in a Web browser, and people would have laughed you out of the room like this is like a joke. You can't do it. It's like a worker or with video. You know, the idea that you needed centralized, highly controlled, you know, resilient infrastructure like satellites and cable systems and so on to deliver television. But then, you know, actually, you could do it with open standards over the open Internet. And this balance between centralization, decentralization and the constant ability to increase quality of service, security, resiliency on decentralized systems is sort of a feature of the Internet. And I guess where this is, I think to some degree, what this this discussion of Stablecoins and Central Bank did for currency and will they coexist and is is one of them is one of these sort of born and grown out of the Internet standards and is another, you know, kind of built to be operated as a kind of controlled, resilient system. And I'm interested to hear how how how each of you think about that juxtaposition and how that how that could play out. [00:28:09][122.7]
Jeremy Allaire: [00:28:12] Anyone can jump in. [00:28:12][0.6]
Cuy Sheffield: [00:28:14] Yeah, I guess, you know, I'll start in. [00:28:16][2.1]
Cuy Sheffield: [00:28:17] I think you kind of have to break down your fiat backed digital currencies into two, three parts. You know, it's kind of what type of money is is back again. Or collateral. You know, who is responsible for operating the technology that actually, you know, issues and redeems it and who operates, you know, the network that that digital currency is is transferred over. So you can start to see the spectrum of design choices that are emerging where at one end you have these private sector led, the Wheating, existing Stablecoins, you know, like the USDC now that are backed by, you know, treasuries or commercial bank money issued by fintechs and operated, you know, transferred over public watching networks with thousands of nodes that are, you know, validating transactions. And then on the other end, you know, you can imagine a digital currency backed by a central bank reserve, you know, issued where the technology is operated by the central bank to create it. And the network is operated by the central bank. I think there's a lot of room in the middle of your options for public and private sector partnerships to be able to go back and issue digital currencies and operate the networks that they run on. And so we think more digital currencies will emerge in the future. And the land somewhere, you know, across that spectrum. And they could potentially co-exist, you know, or engage in market based competition for various use cases, you know, based upon diverse properties that they can have. [00:29:53][96.0]
Jeremy Allaire: [00:29:54] I mean, there's sort of Fedwire money, which is a particular form of electronic money. Then there's visa electronic money. And today, at least, visa electronic money has a lot more utility value than Fedwire or electronic money just for everyday kind of stuff. But you Fedwire money is really important for a certain class of very important scaled transactions with a very clear set of controlled, trusted intermediaries and sort of, you know, it's that interplay. [00:30:17][23.2]
Jeremy Allaire: [00:30:20] Other thoughts from from from you guys. [00:30:23][3.1]
Neha Narula: [00:30:26] Well, I think one thing good got about, OK, I was just going to respond to the security sort of point you made before about open source. You know, it's really surprising. I think sometimes people think because some things out in the open, it means that people are looking at it. There is a very long tail of stuff out there that no one is looking at. And if if someone you know, it's very time consuming, actually, to audit all of the software, to really break it apart. And there aren't necessarily the right incentives in place to do that yet. You know, I mean, we the incentives around open source software is really, really complex. We see things like, you know, bugs in open SSL and in really, really core pieces of software, which tons of billion dollar companies rely on. But it turns out they're being maintained by a couple of people in their spare time. So, you know, I think that there really is this this this issue with open source software that we need to figure out how assault and we're really seeing it in the cryptocurrency world where there's so much money sloshing around, where how do we fund that very deep, important work of doing the auditing, of looking at all the software, testing it rigorously and really making sure that it's that it's top notch? I just want to make that point. [00:31:34][68.3]
Jeremy Allaire: [00:31:35] Yeah, I know. It's it's like the bar is so much higher in in in the technology for digital currency then than, you know, the kind of protocols that, you know, you know, we can get streaming television. It's great over the Internet. But, you know, sometimes broadband goes down and, you know, what do you do? You know, if if the Internet goes down and you've got digital cash, you know, what do you do? Interesting, interesting questions like that. I guess this some want to come back to this higher level theme, which is, you know, when when when we juxtapose, you know, sort of these sort of regulated digital dollars, stablecoins versus envisioned public sector or central bank digital currency. How much of this is a payment system innovation vs. something that actually really has an impact on the actual sovereignty of of money issuance? Because I think about Stablecoins as protocols and formats for the use of sovereign money and on the Internet and as fundamentally a very significant, you know, payment system innovation. It's more than a payment system, innovation because of the programmability and all the things that come with that. But I think there are others that have this have a view that, you know, if if there's a token that represents a dollar and it's issued by someone in the private sector, well, that's not the role of private sector. And where are we in this? Is this a payment system? Innovation is there you know, can the technology be created by operated by the private sector or open source, combined with the private sector, combined with public sector supervision and engagement? Like, you know, where do we sit in those in those trade offs? [00:33:32][116.9]
[00:33:33] Bob, I'd love to hear your thoughts. [00:33:34][0.8]
[00:33:35] Yeah, I think this goes into. I mean, some fundamental questions of what's how you're approaching this problem. I think you can make it worry. It is exclusively at payments, innovation, pure technology, innovation, where you don't change the intermediary stock, for example. Right. So you can keep the current system where the central bank creates the money. That money goes to a commercial bank which has a Fed account, and they use their leverage ability to actually 10x that money, if you will, and create through London. Right. And the real change a little bit. But the underlying intermediary structure doesn't change. And that can make certain types of money, more interesting programmability standpoint. It can make the rails more resilient. Theoretically could make them more efficient and more safe. But the overall monetary system hasn't changed. And for most people, the monetary system works pretty well. I think what the Stablecoin approach, and we certainly discussed this when we were at Circle well, is that it takes the money outside of that constrained environment for a limited environment of. But commercial banking, even though most fiat back stablecoins are ultimately some commercial banks deposit tokens, if you will. It lets them leave that environment. And that can be really interesting. Certainly there is there are people for some reason or other who are not in the banking system. And that is a critical challenge for the Federal Reserve to address and for all central bankers to address. How do we make sure financial inclusion is at its maximum? And we need to get better at that. And so we do explore some of the type of technologies that Circle has explored when your peers explored to understand how do we reach that seven percent or so people who for some reason are not part of the banking system. And in the good part about this project with my team is we're trying to. All those policy levers and what can folks like they do and and our team do that can make more people in the system or can really fundamentally change how people access the system. [00:35:35][120.5]
Jeremy Allaire: [00:35:39] Guy. [00:35:39][0.0]
Cuy Sheffield: [00:35:41] You know, one thing that we started with really closely watching the rapid growth of the Stablecoin ecosystem across the world and I think, you know, one thing that's really stood out has been the emerging kind of global, vibrant developer community that are building new products and services on top of Stablecoins. I think you could argue that, you know, Stablecoins and public blockchains and they can help lower that barrier to entry to building new digital wallets and financial services. And that's great for consumers to have more options in innovative products. And we're starting to see this with with our business today. Just with you know, we we launched this fintech fasttrack program last summer to make it easier for startups to partner visa, an issue, you know, basic credentials. Almost a third of the companies that are coming to us, you know, are building on digital currencies in some way. And so we're really excited about it as really a platform that developers are using that could build new products and services that can then help address financial inclusion. [00:36:53][72.0]
Jeremy Allaire: [00:36:54] Yeah, I mean, it's it's fascinating to watch, obviously, and seeing, you know, a smart contract based stablecoin that people trust that it's essentially an open API for dollars on the Internet. And it's amazing to see what people are doing with it. So we've seen hundreds and hundreds of companies innovating on on on USDC and like they don't have a relationship with us or Coinbase. It's just like they're they're just building and we're in them. You know, we're in the very early stages of the innovation curve of programmability. And and, look, there's going to be bad things that happen, I'd say. But like, you know, we've we've seen, you know, DFI contract hacks. We've seen all kinds of things which, you know, if this was sort of the official system of dollars in the economy, we'd say, whoa, hold on a sec. But at the same time, you know that the rapid pace of innovation is is is obviously really, really significant and commendable. I guess I'd love to actually just latter off of that and, you know, just imagine some scenarios and just get get all of your perspective on if this changes the calculus in particular of this question of the coexistence and or integration between the Stablecoin world and the central bank. Digital currency world. So, you know, one scenario, which I think is not an unreasonable scenario, is that over the next two to three years, there's hyper growth in stablecoin usage and it goes from, you know, tens of billions of of stablecoins into the hundreds of millions or maybe a trillion plus or more. And then all of a sudden it's, as you know, getting to a level which resembles the distribution of cash. And, you know, there are scenarios, obviously, where you have large scale Internet firms are deploying this. And obviously there are large scale Internet firms deploying this. But that, you know, a broad range of Internet companies, you know, and fin tax and large financial institutions are sort of adopted and you sort of have that hypergrowth. Does that does that affect how the Federal Reserve would look at this? Is there a de facto digital dollar at that point that that needs to be then regulated differently? The reserve model regulated differently. So that's one scenario. And it's not it's not an outlandish scenario, certainly. And then another scenario is, is more geo political in nature, which is, you know, the you say that the digital yuan is sort of free floating and made widely available on the Internet. And countries, businesses, individuals that are transacting with China, which is probably in the next five years the largest economy in the world, you know, it becomes a sort of, you know, over the top, I like to say, you know, kind of currency system. And does that change the calculus of how how CBDC, at least from the United States perspective and and private sector stablecoins would work together. [00:40:08][194.2]
Jeremy Allaire: [00:40:12] And you won't want to take the bait on that one. [00:40:14][1.3]
Neha Narula: [00:40:18] I'll say something really quick, which is, you know, we started working on BBC in around twenty sixteen, that's when we first hired we hired our first person from the Bank of England and, you know. Yeah. At that point, I think we were we were hoping we were hoping things would move quickly and they were moving very slowly. So it's definitely the case that all of the things you just cited have accelerated this conversation dramatically. Yeah, I think a lot of folks who thought maybe this was 20, 30 years out. Not something they had to worry about right now realized, no, this could be a five year problem or less, and that we really need to get smart on it. So, yeah, definitely the things you mentioned an accelerator. [00:40:59][41.2]
[00:41:01] Yeah. And I'll agree there with may have certainly no, I can't speak on behalf of the Federal Reserve System and our team of the technologies team. Right. But what's critical for us to understand and one thing one reason we've launched this is we know that the private sector, like Circle oh, like the center consortium, for example, are building really interesting technologies that we need to understand deeply. And so regardless if they go to a certain atha set threshold, that becomes systemically important. And you saw a little bit of that with China, right. The public statements by the People's Bank of China, one of the leading reasons to use it is up program was because of systemic risk of value came up. Right. They they thought that there were systemic risk in those, too. And so the Chinese government really had to learn how Alipay, and wechat worked right to build or helped build their own system. You know, one thing our team does is we're building our own intense internal testing and market to put technology like sensors, USDC technology or the Libra technology through a comprehensive testing environment to understand what kind of at least technology stresses that we'd put on themselves internally if they got to a scale of a dollar. Because we think that you have to understand the underlying technology if that does happen and what kind of systemic risk that would pose at least one technology standpoint. [00:42:15][74.0]
Cuy Sheffield: [00:42:17] You know, I would just add that there's clearly a growing demand for Stablecoins, and I think, you know, as Stablecoins grow, they present this kind of, you know, live ecosystem to observe, you know, what developers are building and how consumers and businesses are interacting with these, you know, cryptographic bear assets. So I think, you know, as the stablecoin ecosystem matures, we can start to see what features and what infrastructure emerges and if it's addressing youth cases that central banks might be looking for, for CBDC and if there should be, you know, different properties or different designs of digital currency to be able to do that in a safe and secure way. [00:43:05][48.8]
Jeremy Allaire: [00:43:08] So there's several, several pieces that I want to. I want to ladder off of from comments that each of you have had made that I think are really interesting and worth talking more about. So one is and actually, you know, speaking of the Chinese, you know, DCP, they're sort of the two tier model that people talk about, right. Where you have you know, there's some component that centrally administered and then there's another tier, whether it's large fintech bank like firms or actual commercial banks that can operate this technology. And there's sort of a two tier model. And I guess the way I'd thought about it at least, is, you know, could could could private sector arrangements for standards for things like digital dollars, like USDC. Could those eventually just become standards that were supervised by the Fed or other central banks? And and but the the the underlying money becomes, you know, you know, central bank and one or equivalent. But the sort of technology is in some ways more like how Visa grew. Right. Which is, you know, the central bank doesn't run the card networks, but it's sort of it became a private sector consortium of firms that said we're gonna build standards for interoperability, for electronic money settlement, and it's going to set a layer above, you know, Fedwire, a layer above, you know, other other networks. And it seems inevitable that like at least in the West, that a two tier model is is what's gonna happen. It's sort of a question of is this something created from scratch by you guys or is it something that happens organically through public private kind of collaboration? [00:44:58][110.6]
Robert Bench: [00:45:01] Yeah, I mean, I can say the two tier models. It's what we do now, right? The Federal Reserve does not handle individuals. That would be a major mission change for us to start managing individuals. Accounts are of interest to individuals wallets, and the public private sector does a good job of that. So there is a neat fit there. And America has a long tradition of, you know, the public sector with its mission driven approach, working with the private sector to innovate. Well, I mean, pretty man of the moon, the Internet. Right. That you did the whole growth of the Internet. That was a public private sector partnership that continues to this day. So there is a really nice fit there, Jeremy. I think you're exactly right, because opening accounts, that's something we don't do for individuals right now. And that would be a big change in the private sector, does it pretty well. And firms like Circle, you know, when we weren't Circle and learning about how to really reduce that friction and get more people in the financial system, I think that's something the private sector has done really well and we certainly need to learn from. [00:45:57][56.6]
Neha Narula: [00:46:00] I really, really great, Jimmy. Yeah. I mean, somebody said this to me before. I'm just going to totally steal it from them. But a nice way of looking at these big projects like the Internet and the moon landing. Things like that. You've got .gov, .edu and .com. Right. You got like all these three different pieces that have been really critical in bringing these things to bear. Right. And it's it's not one side on its own. I mean, obviously, the innovation of the private sector, you need the regulation, the representation of the people from the public sector, and you need neutral research, fundamental research and design that often comes from academia. And that can't really be provided by the public or private sector necessarily. So, you know, it's really interesting to think about. Yeah, there there are boards. Yeah. But it's really interesting to think about about these pieces of this. [00:46:49][48.4]
Jeremy Allaire: [00:46:50] I can I like I like that concept a lot. It resonates. It resonates well. Well here, I guess another piece of this which has been has been talked about and we've talked about it a little bit here, which is, you know, digital currency, generally speaking, stablecoins as they exist today and potentially, you know, digital cash as a product of central banks, you know, know in theory have this attribute of being barer instrument money and and even in like a two tier model. [00:47:26][35.9]
Jeremy Allaire: [00:47:26] Right. If it if it's just an electronic record at a bank, it's no longer a cash product. It's no longer a bear instrument. Money. And, you know, I think there's a lot of discussion about privacy, anonymity, self sovereignty. These are like core core attributes that have drawn people to cryptocurrency, but that also, you know, tie into, you know, the product manager of cash. And the Fed thinks about those issues. The U.S. Treasury certainly thinks about those issues. But, you know, where do we think we need to land on that? And that's one of the most controversial pieces of all of this. It's one of the lightning rods that gets, you know, people on on. [00:48:12][45.5]
Jeremy Allaire: [00:48:12] I don't want to say both sides, but on multiple sides of this, you know, pretty pretty fired up because when you have barer instrument money and has the speed and power of the Internet, that changes things just like when you opened up the Internet as a communications medium to everyone, everywhere that changed things to like my kid can go get recruited by ISIS on YouTube or, you know, people can gather in crowd, crowd, organize a revolution in a country that's a dictatorship or are things that and they use tor and they use secure communications to subvert authoritarian regimes. And, you know, there's all these sort of tradeoffs, privacy, anonymity, self sovereignty. And, you know, this is all going to kind of come I don't wanna say crashing down, become kind of come together in the design of digital currency models. And where do you think the Fed sits on on those issues? [00:49:02][49.9]
Robert Bench: [00:49:04] Well, I can't speak on behalf of the Fed, certainly, but, you know, I can. [00:49:09][4.4]
Jeremy Allaire: [00:49:09] Bob. That was like a softball. [00:49:10][1.1]
Robert Bench: [00:49:11] Yes, sir. I think there's there's some really key issues there. Right, Jeremy. And I think it's not just how does the Fed think about security and privacy right now? House point, when we think about future payments system security, is everything right? The dollar can't break. That being said, we do think about in our research questions of what kind of data transmission happens on that network. Right. So the Bitcoin network transmit transactional data. Right. It's Jerre Jarrah's while it's a diamond gera wallet, a center. Will it be X amount of BTC? Right. And that's all it sends a world in which you may have a private sector actor doing all of it right in your world, having a second layer of, say, monopolistic actor doing it. That's a lot of information that one private sector actor gets. And, you know, I've heard you say this a ton of times. You know, Mark Andriessen talks about the original sin of the Internet, which is. Right. People's Barder people's data for having ad revenue. Right. And that's something people think about, poor public goods. Right. This is how if we have a public mission to provide central bank money, how do we do that and protect the public data? And this is where our work with her and her team is really important because, you know, when you think it's security, you know how you have to really think deeply about security and challenge that security question that if you're going to collect any data, you have to understand how is it protected and how robust is that security protocol? Even Bitcoin itself isn't entirely secure. We don't know. People who know it well enough know that that's that's true. If you get enough money, power, bitcoin can be attacked. So we need to think about these fundamentally because it is a public good and a people's financial data is really important. [00:50:52][101.1]
Jeremy Allaire: [00:50:56] I remember when when Sean and I first walked in and talked to you about what we're doing with Center and USDC. [00:51:05][8.6]
Jeremy Allaire: [00:51:05] And I think one of the criticisms that you had, which is totally legitimate, was, well, this is centralized and essentially issued. And and there's a lot of focus, I think, at DCI on censorship resistant forms of digital currency and and supporting that development and privacy related technologies and the like. I'm sure that continues to be a focus for DCI. But as it relates to this exploration on central bank digital currency, what are your thoughts on how how that how those designs can can play out with public sector money? [00:51:46][40.8]
Neha Narula: [00:51:48] Yeah, well, I think, you know, in some ways we're kind of running two really huge experiments right now. We've got a cryptocurrency world, which is, as you put it, very decentralized. You know, these groups of developers from around the world, all different time zones. It's very hard to get on a meeting together. You know, we're just writing a software, putting it out there. People running it, people picking it up. It's amazing. Right. And we are seeing massive amounts of experimentation and people putting tens of millions or hundreds of millions of dollars worth of Tokenizing crypto currencies into contracts and sometimes losing that money. Right. We're seeing a lot of experimentation and variation in that world. And these systems were specifically built and designed to be hard to turn off and hard to regulate and hard to sort of find those points of control. And there's a certain value to that because it allows a certain type of experimentation to happen that maybe couldn't happen in other more sort of like different types of structures. That said, money, especially fiat money, you know, the dollar is not a decentralized good. It's it's it's you don't fork the dollar. Right. It's not a decentralized government sort of thing. There's the Federal Reserve. There's a United States government. There's you know, there are these these actors in place who created the dollar and and thus have control over it. And we need to acknowledge that. And so, you know, I do think I don't think fiat currencies are going anywhere anytime soon. I think that the they're still pretty pretty important. Which one? Yeah. Yeah. Maybe depends which ones are still incredibly important to people's lives and make a huge impact. And I think it's important to look at that area as well when we're thinking about redesigning this technology, which is kind of what you're doing with Stablecoins, I think. So really, these are two different approaches that have a lot to learn from. We can learn a ton from the lessons of the last 12 years in a decentralized world to think about how to carefully design an architect, a CBD seat. I mean, that's the that's the idea here. That's why that's why we're doing this, because we think there's some value. So I don't see these two areas at odds at all. I think they I think they work together in order to sort of have that experimentation. Have, you know, that crazy stuff happen. A lot of people are going to lose a lot of money, unfortunately, but they're taking that risk and then learning from that and bringing some of the best ideas from that into the Fiat world. [00:54:15][146.5]
Jeremy Allaire: [00:54:16] Mm hmm. It's great perspective. [00:54:19][2.9]
Jeremy Allaire: [00:54:21] I want to I want to touch on something that kind of had reference as well, which is actually, you know, Brian Brooks, who's who now is the head of the OCC, talks about, you know, the you know, the dollar needs to remain competitive. There is a you know, there's a competitive economy for fiat currencies. And there's there's there's obviously the monetary policy as part of the product. And you can and, you know, the sovereign credit and all of that good stuff. But then there's the utility value. You know, what is the you know, how do you build better features? How does the dollar become a more feature rich currency? And now we're moving into a world where there's actually competition on the utility value of fiat currency. When you are now moving to this realm of digital currency and so you can design features, which is very, you know, I mean, cash, you know, what's the security technology or the anti counterfeiting technology might have been features of of a physical note, but now there's like really, really utility. And this touches on something, again, that that you you brought up, which is the amount of developer innovation that's happening with programmability that's happening, that, you know, this in some ways and this is part of our view envision, which is Harish just becomes a ubiquitous free service on the Internet. There's there's actually, you know, it becomes this much broader thing. And that this isn't just about payment system. This is about a bigger set of innovation, which is sort of in the economic contracting layer that now businesses can construct and program economic contracts in really, really profound ways. And and that's like the the ultimate utility value that that exists here. [00:56:07][106.2]
Jeremy Allaire: [00:56:08] And I'm curious to hear, you know, each of you think you reflect a little bit on on that that layer of all of this, whether it be on what's happening in the private sector today or what might be possible in public sector related to CBC initiatives. [00:56:24][16.4]
Jeremy Allaire: [00:56:26] Maybe I'll start with you. [00:56:26][0.5]
Cuy Sheffield: [00:56:27] Yeah. I think there used to be a clear line between, you know, software companies that would provide software as a service solution for businesses to help them do things like manage expenses and simplify accounting. And then you had financial institutions that would help businesses send and receive payment. You know, we're now seeing a. And where software companies are embedding payments into their workflows to be able to add additional value for their customers. And so just as a quick example, if you had a large company and you want to spend a hundred thousand dollars and a W. S, you might see a lot of purchase order on a word, doc, you know, e mail it off for approval. You have it land in the accounting department and then they use their financial decision to make a wire. And this is now being replaced by software. There are companies where you submit a request, it's approved and it automatically initiates payments. And so this design space of how can you program payments as a feature within software platforms is really expanding. And, you know, many companies are using these products to do that today. And we're excited to see if smart contract and digital currencies can further accelerate that trend. [00:57:41][73.7]
Jeremy Allaire: [00:57:42] Mm hmm. [00:57:42][0.1]
Jeremy Allaire: [00:57:45] Bob. [00:57:45][0.0]
Robert Bench: [00:57:47] Yeah, I'll go ahead. I think you're going to question Programmability. I think this kind of goes back into that multiple layer system that you discussed earlier, whereby when we talk about our general purpose research, we're really focusing on, as I said earlier, security. Right. Security has to be the ultimate issue. And when you add programmability, certainly you expand the attack surface of that software or the digital currency software. And that's something we think about deeply. You know, there is a world in which, you know, the underlying prototype could be extremely secure but have very limited programmability. But those private sector partners or commercial banking partners, they may be able to add that programmability, and I think they already are. So banks are having open API is now certainly the Fed now program, which is 24/7 real time gross settlement that enables banks to work a lot faster with their payment sector partners. But on our research, which is the core general-purpose CBC, security is really the ultimate factor we think about. And so Programmability is a nice to have. But any threats of security? We really it really is subject to scripts, strict scrutiny and our. [00:58:58][71.2]
Jeremy Allaire: [00:59:01] Neha. [00:59:01][0.0]
Neha Narula: [00:59:02] Yeah. Yeah, echoing that, I mean, I really think there are different stages to technology, right? And, you know, it's a big question, what stage are we in right now with the cryptocurrency world and cryptocurrency technology? When I think about having a really robust platform, I think about a layered approach. So I think about the Internet stack. I think about those protocols, how the bottom layers were not depending on the top layers. It wasn't all squashed into one virtual machine that was really nice, clean separation. And as we are doing our research and looking into what we can do with programmability, you know, we found that with a pretty small number of core features, you can you can get a lot out of them. Right. You can use the right signature scheme. If you if you have time locks, things like that, you can really get a lot out of the upper layers. Now, this is a pretty difficult paradigm to program and experiment with. Is the problem right? The paradigm that's easiest to sort of experiment with and try lots of things is one where you basically can write JavaScript. You can you know, you can have thousands of developers who are writing all of these easy to write contracts, and that's where experimentation can happen. But I really think you and I may be wrong, but I really think we're gonna have to translate what works in that area into a more robust architecture. That's what I suspect we'll need to do. [01:00:30][87.9]
Jeremy Allaire: [01:00:31] Makes sense. I think we think about that layering as well. And like we in some ways look at it USDC as a protocol and it needs to be independent. Actually, a blockchains it can't be tied to a specific blockchains. And there's so much innovation happening in different fundamental architectures for this. And so that's something that that will be we'll be rolling out a lot more of is sort of how do you use this as a protocol on very different types of blockchains that support different use cases and the like. So I always like to end with with with predictions from from folks. And, you know, clearly it seems like Internet scale money and digital cash models are are here. They're emerging. They're growing. And and I'll sort of ask two related questions, which is sort of, you know, within this kind of regulated digital now or stablecoins space, whether it's USDC or or Libra USD or others that still don't exist three years from now. What do you guys think there? There will be in circulation and in this? [01:01:43][71.1]
Neha Narula: [01:01:51] All right, I'll go first. If no one wants to talk, so, you know, I'm really bad at predictions, so I never get anything right. But I will raise the question isn't. You know, the U.S. dollar the ultimate stablecoin in a way. You know what? What is it? What does it do competition wise if something does come out and is really, really has the right features around it? You know, how do how does the Stablecoin arena evolve? That's something I'm really curious about. I'm not making predictions necessarily, but I think it's gonna be really interesting to see. [01:02:22][31.5]
Jeremy Allaire: [01:02:25] Cuy. [01:02:25][0.0]
Cuy Sheffield: [01:02:26] I'm not making predictions. We're seeing a ton of interest and activity, and I expect that to continue. But I can't put a prediction out. [01:02:36][9.6]
Jeremy Allaire: [01:02:37] And Bob, will there be a Federal Reserve digital dollar central bank digital currency in three years? [01:02:45][7.3]
Robert Bench: [01:02:46] I cannot say that there will be a digital dollar GP, CBC in three years, but I do hope to have with a lot of Neha's help is an open source platform that we're gonna offer the world to take a look at what might work so that not just the US can benefit it, but from any country or any software developer wants to explore how this might work better. [01:03:07][20.5]
Jeremy Allaire: [01:03:09] That's cool. I like that. All right, very well. Well, this has been a really nice conversation, covered a lot of ground, could have gone on on on a lot of it. We went over a bit. So I just want to thank each of you for for joining today. Thanks so much. [01:03:25][16.2]
Neha Narula: [01:03:27] Thanks for having us. [01:03:28][0.8]
Cuy Sheffield: [01:03:29] Thank you. [01:03:29][0.1]
Jeremy Allaire: [01:03:29] Absolutely. [01:03:29][0.0]
Jeremy Allaire: [01:03:32] So a great deal to synthesize there. And these these themes are going to just amplify, I think, very much month over month, year over year as we go forward. And we'll continue to come back to these here on The Money Movement. Next week, we're actually going to step away from Stablecoins. And we really spent an enormous amount of time on Stablecoins and the fundamental innovations in Blockchains technology with them. And we are going to die for a moment into the Bitcoin thesis and really try and take a look at where we are in the journey of the Bitcoin thesis, what that core thesis is. It is today the largest digital currency in the world and continues to grow and its use very different design center, a very different set of of of goals in many ways than things like digital dollar or Stablecoins or USDC. We're gonna be joined by two significant leaders in the space. One is Michael Sonenshine, who is managing director of Grayscale Investments, who manages one of the largest publicly investible Bitcoin funds in the world and is part of the digital currency group. And Dan Moore had an earlier guest on The Money Movement. We'll be rejoining us. He is the CEO and co chief investment officer at Pantera Capital, one of the great kind of global macro thinkers for four decades, actually, before applying his global macro thesis to to Bitcoin. And we'll hear from both of them on where we are on the Bitcoin thesis and journey until next week. Stay well, stay safe and stay informed. [01:03:32][0.0]

Cuy Sheffield
Head of Crypto, VISA
Neha Narula
Director of Digital Currency Initiative, MIT
Robert Bench
AVP, Federal Reserve Bank of Boston