Chris Giancarlo & Kevin Mole Interview - Western Union's Retail CBDC Pilot With The Digital Dollar Project

Chris Giancarlo of the cofounder of the Digital Dollar Project and Kevin Mole is the Head of Digital Assets at Western Union. In this interview we discuss:

• Digital Dollar Project’s mission
• Western Union and the Digital Dollar project working together
• Western Union’s Retail CBDC pilot on R3 Corda and the results
• Western Union’s Crypto and Blockchain strategy
• Western Union and Ripple pilot
• CBDCs vs Stablecoins
• What’s next for the Digital Dollar Project
• Crypto Regulations

White paper https://digitaldollarproject.org/wp-content/uploads/2023/08/Digital-Dollar-Project-Cross-Border-Remittance-Pilot-Paper.pdf

Transcript:

• Welcome back to The Thinking Crypto Podcast, your home for cryptocurrency news and interviews. With me today is Chris Giancarlo and Kevin Mole. Chris Giancarlo is a former CFTC chairman, author, and co-founder of the Digital Dollar Project, and Kevin Mole is the global Head of Digital Assets at Western Union. Chris and Kevin, great to have you both on,
• Tony its great to be with you again.
• Thanks for having us.
• Excellent. Kevin, since this is your first time on the podcast, Chris and I have spoken many times over the years. Kevin, tell us a bit about yourself, your professional background and more.
• Yeah, sure. So I, as you mentioned, I’m at Western Union. I’ve been at Western Union for about 15 months running our work in digital assets, cryptocurrency and others. But before then I was in the industry at Ripple, so I was at Ripple for close to three years and ran a lot of things around partnerships with regards to co-branding and co-marketing, as well as sales enablement, product strategy, go to market in particular, pricing our product and figuring out what customers amongst the financial institutions that we wanted to sell our software to. So that was really my first foray into the blockchain space. However, you know, I did talk a lot about it when I was a consultant, so prior to Ripple, I spent some time at McKinsey and really started to talk to banks about what blockchain is. It’s more educational focus, you know, and I wanted a little bit more of the practical exposure to it, so that’s why I joined Ripple ultimately. But for me blockchain is a way to deliver so much value particularly around payments, which is a vast majority of my career, whether as a consultant or a practitioner, and the world of payments, particularly international payments. And I think, we’ll, you know, deep dive into it today a little bit more, has some areas of, I would say, pain points, particularly for the most needy. You know, I talked to you about what we do at Western Union, but you know, first and foremost it is for me trying to bring value to a consumer that has traditionally been unbanked or underbanked. And that has driven a large part of my career and my motivation for wanting to be at the intersection of payments and blockchain.
• Hmm. Well, I have a lot of questions for you and what Western Union’s strategy is, but let’s set the table a bit because the genesis of this conversation that we’re gonna have is around a retail CBDC pilot that was done between Western Union and the Digital Dollar Project. Chris, if you can give us a quick overview of the Digital Dollar Project and its mission, and then we’ll go into the pilot details.
• Great. Tony, thank you so much, and thanks for that question. Thanks for this opportunity to join you again and be with Kevin today. The Digital Dollar Project has a very simple mission, and that is to look at how we can invest future proof, the US dollar and its reserve currency status in a world where value is increasingly moving to both decentralized and centralized distributed ledgers. Some of those centralized ledgers run by other governments, and some of those run by private sector enterprises and stablecoin operators. And so as we think about a future where value increasingly moves in that direction, how best to protect the dollar. Now one, you know, that may be a CBDC, a dollar CBDC, it may not be, we do not advocate for the US to form one. But we do advocate for the United States not to abandon leadership in what is effectively a new frontier of the internet to its economic competitors, and worse its economic adversaries.
• Yeah, that absolutely makes sense. So to your point, you are just advising the Fed and the different parts of the government about these solutions and what’s on the table, but you’re not necessarily advocating for CBDC because there is, in the digital economy, stablecoins like USDC and others. CBDCs coming from different folks. And I guess it’s to be determined, what will the US use as some form of digital money? Is that the gist of it?
• Well, first of all, we cannot advocate for the US to deploy a CBDC because we don’t know what that means right now, if it’s one modeled on China’s ECNY, I would think the Digital Dollar Project would be opposed to that. If it’s one, however, that reflects American values, American constitutional principles, principles of a right to privacy, protecting freedom of speech, freedom of assembly, well that type of CBDC actually could be a huge competitive advantage for the United States in a digital future. So it really depends on what that CBDC looks like. There seems to be an assumption out in the public that any CBDC the United States would adopt, would be modeled on China. I think it’s too early to make that assumption. There’s no reason why the opposite couldn’t happen. There’s no reason why a US CBDC couldn’t be likened to cash, but even more, less subject to surveillance than cash is today. So the question is, what will that CBDC look like? And the purpose of the Digital Dollar Project is to hopefully influence that debate. And we are a private sector initiative, where a 501c3, we bring together the private sector and the public sector to inform that conversation. And hopefully we can do so in a way that if the United States were to adopt a central bank digital currency, it would be one reflective on traditional democratic values of a free society, the right to economic privacy, economic liberty, and freedom of expression in financial means of expression. But it’s way too early to know what the outcome is. But I do think all free minded peoples, all democratic thinking peoples have a say in my book, “Crypto Dad,” I jokingly say that money is too important to be determined by central bankers. And it’s a play on a quote from a French premier who at the end of World War I, looking back on the carnage of the war, said, you know, war is probably too important to be left to the generals. And in a similar way, money’s as much of a social construct as is a government construct. And we at the Digital Dollar Project believe that’s too important of an issue. Where the issues involved in what our digital money someday may look like. Are too important to be left to central bankers and the official sector itself. We need to bring the private sector’s voice to bear. And that’s what we’ve been doing at the Digital Dollar Project since we were formed three years ago.
• Oh yeah, that absolutely makes sense. And there have been a lot of bills most recently, Tom Emmer and some of the folks reintroduced a anti surveillance CBDC Act, if I’m getting the name correctly. Are you in support of, you know, those respective bills, even though, like you said, we’re very early, we don’t know what it will look like, but what are your thoughts on those respective bills?
• You know, I think Tom Emmer’s concerns are very well placed, and it’s not just Tom Tom Emmer but a number of public figures have voiced those concerns from Ron DeSantis and others. Those are absolutely the right concerns. If the United States were to deploy essential bank digital currency that’s modeled on China’s CBDC or it’s ECNY, which has surveillance features in it. What I’m perhaps disappointed in is the same concerns about surveillance and privacy somehow do not seem to be reflected in the legislation concerning stablecoins. Whenever you have a centralized distributed ledger technology, whether it’s stablecoins or CBDC, the opportunity for surveillance, the opportunity for censorship is just as present. As we’ve now seen with our public square. Social media, government has not hesitated to put pressure on social media companies to ban certain types of speech. And those social media companies are not governed by the Constitution. And the argument is that they’re free to censor anything they want. Well, the same could be true with private sector approaches to digital currency. In fact, interestingly, the government is prevented from invading privacy by the Fourth Amendment, but a private sector operator of a stablecoin is not. So the same concerns about privacy apply to stablecoins. And that’s why we at the Digital Dollar Project, approach this in a very open way. We’re concerned about invasion of privacy in anything. That utilizes the use US dollar as its foundational item, whether that’s a stablecoin or whether that’s a CBDC. Our whole purpose is to make sure that our constitutional liberties under the Bill of Rights to make sure that our democratic principles of economic liberty are reflected in the digital future of money, especially when it comes to anything having to do with the US dollar.
• Hmm, yeah, I’m in total agreement with you in that certainly stablecoins have to fall under that umbrella of guardrails and make sure that our data is, you know, being used correctly or is abiding by the constitution.
• And I’ll add one more thing. You know, we tend to think about digital currency in negative terms. How will it surveil us? How will it censor us right? What we should, however do, and I think this reflects the American spirit of innovation. Let’s think about it the other way. What if we got principles of freedom of speech and economic liberty encoded into the digital money? Would not the rest of the world flock to a digital currency that protects it? If we were to get a digital dollar, whether that’s operated by stablecoin operators or whether that’s central bank digital currency or most likely both. Wouldn’t that attract the world’s attention? Wouldn’t that actually perhaps set the dollar up, for another generation or more of reserve currency status if we get those principles right?
• Yeah, absolutely. And we’ll talk a bit more later on the reserve currency status and how that would, you know, play out with the current geopolitical environment we’re in. Kevin, I would love to switch to you to talk about the retail CBDC pilot that was done between Western Union and the Digital Dollar Project. How did this relationship come about and what was the mission of the pilot?
• Yeah, so I would just follow on to Chris’s comments. A lot of it comes down to design, right? And so we, it’s not about, you know, CBDC is this one monolithic thing, and therefore we either implement it or we don’t implement it. I think it’s a question of you can implement it in many different ways. For us at Western Union, we’ll take the perspective of our customers first and foremost on all of this. And some of them, the privacy concerns matter. All these other, the role of the government can impact our customers. And so we do want to take or at least start to explore and understand what the different design principles can be and how does it impact our customers. So the pilot, first and foremost, was to make it practical and make some assumptions around a design. And then think about what the outcome tells us in terms of the benefit or disadvantages. And again, we’re not advocating for or against, we’re just trying to learn from how we can put this into practice and then what it tells us. And so the relationship with Digital Dollar Project actually goes back a while. In fact, it started before I joined 15 months ago. And at that point it was held in our strategy office, but kind of, you know, we’re having discussions but not really getting anywhere. So I really pulled our team together, the treasury folks as well as the strategy folks, and they said, either we do this or we don’t, right? It’s not something that we want to do on the side of our desk and we want to do it, and we wanna look at it seriously. And so we did make the decision to go ahead and I’m glad we did with the leadership of Chris and Jennifer Lassiter, who’s Executive Director at the Digital Dollar Project. Started to rope in other folks who would bring the technology as well as the great kind of market insights from Accenture. And so we got a team together and I would be remiss if I didn’t call out our partner in crime, which was the bank by the name of BDO, it’s the largest bank in the Philippines. They have tens of millions of remittance customers that are recipients of foreign payments by their relatives abroad. Mostly workers who go to places like the US, places like Europe, places like Southeast Asia to earn money and send home. In fact, I think it’s something like a high single digits of GDP of Philippines has to do with inbound remittance payments. So you get a sense of the scale of the need for, an understanding of CBDC is quite frankly ’cause it impacts people’s livelihoods. And that was the starting point for our pilot.
• Yeah, absolutely. And there are a lot of benefits, as you mentioned, and moving money and instance settlement and improving the ability for folks to transact at a faster speed and much more. Tell us about which blockchains were used or was it a single blockchain, if you can give us the details there?
• Yes, we did take advantage of a blockchain that had, I think, industrial strength as well as permission capabilities. So we worked with R3 and their Corda technology, which is not unknown to the space of CBDCs. There’s been a number of projects and pilots around the world on this technology. There was a sandbox set up, which allowed us to test it in a closed environment where we’re not moving actual money, but we’re still being able to replicate a real life use case with looking at the outcomes and things like, you know, how do you set up the various nodes of the blockchain? How does one permission certain parts of the entity to be able to transact and sign transactions? And then we looked at, that was the first part, just like, how do we architect all this? And then the second thing is running transactions as a way to understand the scalability, the performance. And quite frankly, I think, you know, looking back, I think Corda really helped us understand not just like the benefits of the great technologies, some of the limitations. And then how open questions of how we may wanna further the design that we weren’t able to do in the sandbox. So if you read our white paper, we did pose kind of what are the next step questions that we would look to answer. And I think we then at that point, you know, we should think about is this the right technology? Or maybe multiple, I think you mentioned, you know, looking at multiple chains. All of which have really great capabilities that are built around specific use cases. I mean, we all are familiar with Bitcoin, right? And we’re familiar with how Bitcoin may or may not be used in the context of a payment. The high gas fees proof of work may not necessarily be the right way to move low value, high frequency payments, right? And so that brings us more to the spectrum of what you’re familiar with in XRP and how it was built around for, you know, transactions to settle it in seconds at very low costs. And so you have a wide range of, and then we, another dimension is public, private permission lists versus permission. And we wanted to start somewhere, the Corda sandbox allowed us to do that and get some very valuable insights. But there were some next questions that you can read about in the paper. And so yes, that addresses the technology angle.
• Question for you on the private and public aspect of it, because I’m curious and forgive my ignorance around it, why did you call it a CBDC versus a stablecoin pilot? Because given that there is gonna be, you know, potential CBDCs from central banks and federal governments at that level, while you’re, you know, in the private sector of doing business and building your own respective token, what’s the difference there? And once again, I hope I’m articulating that well.
• So I just wanna clarify, we are not Western Union have not announced any plans or any ideas for having our own token. I think that the fact of the matter is we need to deal with central bank backed currency. It’s part of our business, we move, billions of dollars every week interacting with institutions that do hold government backed, you know, currencies. If Philippines, if it’s the US wherever there’s a CBDC, we are going to as Western Union interact with that CBDC. That’s why I felt this was important. You know, Chris may wanna mention about what, you know, what are the prime elements of a CBDC, that make it a CBDC. But for us, we know at the end of the day that we will have a role to play in the ecosystem of any retail based CBDCs. Stablecoins being driven by the private side. We’ve got probably more of a, you know, a question about whether or not we wanna play in that ecosystem. Do our customers value that ecosystem? If they value it, how do they value it? But I’ll leave it up to Chris kind of point out the role of CBDC vis-a-vis the stablecoin discussion.
• Actually that’s an excellent introduction to why I’ve said repeatedly, and I’ll repeat here, this whole debate, CBDC versus stablecoins is such a false debate. It’s such a, I hate to say it, but it’s a moot conversation. The fact of the matter is in the next 10 years, we Americans are going to be dealing with both, CBDCs and stablecoins. There’s over a hundred countries in the world right now that are looking at central bank digital currency, 19 of the G20. That China’s already placed its digital wallet and over 240 million wallet holders and is using that product as not just a domestic system, but as an export product. It’s very likely within the next 10 years, we may see some countries in Central and South America adopting CBDCs which are white label versions of China’s digital currency. So CBDC is coming, there’s very likely to be a digital Euro in the next few years. Also, stablecoins are coming. We know that’s true. We know that the volume of stablecoin transactions have grown considerably. the aggregate value has gone from 3 billion, I think three or four years ago to 125 billion today. So and transactional volume is up tremendously. The fact of the matter is the future is going to be one of both decentralized I.E you know, Bitcoin, Ethereum and centralized distributed ledger system. Some of those centralized ones will be run by governments, some will be run by private sector actors, and that’s all for the good, the more choice the better. But this notion that one is pitted against the other is a false choice. Moreover, is not only a false choice, it’s very likely that both CBDCs and stablecoins will be interdependent in the same way that although 90% of the money in circulation today is bank money, it couldn’t exist without the 10% that’s not bank money. And why is that? Because in a crisis people trade in their bank deposits for the most safe form of value. And that is government securities instruments that hold the full faith in credit people when the bank is in trouble, run down to the ATM and take out their money. In a similar way, if a stablecoin were to get into trouble, if there’s not a something and join the full faith in government, it may be difficult for people to keep their money in the stablecoin. They may then shift it around to other stablecoins and ultimately go to another sovereign, maybe a digital Euro in a flight to safety. Now we don’t know enough of how this all plays out, which is why the Digital Dollar Project is all about conducting pilot programs to get to the answer. But it’s very likely that the same way cash has a symbiotic relationship with bank deposits, A CBDC could have a symbiotic relationship with stablecoins. In a similar way, stablecoins may be where a lot of innovation in terms of smart contracts takes place in which people could then take a core digital a CBDC and utilize it with a lot of smart contract functionality. Again, I think we are in sort of almost a false academic conversation construct when we pit CBDC against stablecoins. The fact of the matter is the world and the future is likely to have both. And we need to think about the real thing we need to be talking about as I think those living in the American economy and quite frankly global citizens who have enjoyed the globalization that’s been a result of the US dollar’s primary reserve currency status over the last 30 years. Providing the world with a benchmark pricing tool and a benchmark payment tool in the US dollar. What we need to be thinking about is how do we future proof the dollar for this world of centralized and decentralized systems of value. And how do we preserve what’s good about its reserve currency status in that future? And as we think about that, we should think openly about both how do we improve stablecoins and how do we improve a digital dollar or a CBDC based on the dollar to reflect our values if we can imprint our core democratic values on digital representations of the dollar in the future we’ll have done ourselves and our children and our grandchildren a whole lot of good. And I’ll argue we’ll have done the world a whole lot of good because it will still look to a stable store of value as a benchmark. If we allow the dollar to not play an important role in this digital future of money, I’m afraid that the outcome will not be one that will be good. If we do not make sure that our values are right, our sense of economic freedom, our sense of privacy is imprinted on the digital future money. Whether that’s stablecoins or CBDCs. I think that we’ve done ourselves a disservice.
• Yeah, absolutely, Kevin, for regards to the pilot, were were you happy with the results? Were there any takeaways that you can share, you know, improvements in speed, settlement times, and I’m assuming the end customer doesn’t know this is happening behind the scenes, they just continue their normal user interaction with Western Union, correct?
• Yeah, so the setup was that we were presuming that the CBDC would be issued by a central bank here in the US. And the same would be happening in the Philippines. So effectively what we’re talking about here is, a cross border transaction where there is effectively a foreign exchange component involving two central bank digital currencies. But to answer your question about did we see benefits, do we see improvements, do we see potential added risk? Let me just paint a quick picture of the existing solutions today that most people who send money abroad face, which is, and some of it is not known to the customer, right? Imagine billions of bank accounts being able to send money to any other billions of bank accounts and the permutations, I mean, we deal with 200 or so jurisdictions, which represent something like 20,000 different pairings of, and that’s just two different currencies being a pair. Now imagine a bank account of your bank account and my bank account, two different countries. The amount of interaction that needs to happen for those two individuals to talk the same language means there’s likely going to be intermediaries along the way. And those intermediaries along the way, each present a potential risk, whether it is their systems are down or the language interpretation of a precursor system didn’t necessarily make its way to its system. And so we have a lot of stalled payments, in some cases payments that are just stopped entirely or reversed entirely. And so just the mere magnitude of the number of individuals and accounts and permutations of where one can send and where one can receive money means we have a highly complex system to start, right? Second thing is, and that has to do with interoperability. The second thing is, I’ll call it counterparty risk, where in order to get money and we promise money in minutes in many countries, in order to do that, we are likely pre-funding and buying local currency in advance of that being paid out. That is typically sitting with our financial bank or financial institution partner in that country. That poses of course counterparty risk. What would happen if one of those financial institutions were to be deemed insolvent or frozen? And so we do have assets, Western Union has assets in capital around the world. So we have that. And the third thing is transparency for the customer. How do we, across all the complexities I talked about, how do we tell a customer where their payment is, when it’s going to be received? The we’re dealing with people’s money. In many cases a migrant population is sending a majority of their paycheck home to their loved ones. So imagine if you took a portion of your paycheck out and we know in the US we assume at the 15th or 30th of every month we’re going to see a transaction in our bank account that says, you know, ACH payment or what have you, debited into our, but a lot of our customers may not necessarily have that same certainty or transparency. And so what do we see? We saw that a distributed ledger technology helps both organizations, Western Union and BDO on the receive side speak the same language when it comes to how do we initiate the transaction, but how do we close it out too? How do we reconcile it at the end of the day? And in some cases a reconciliation. Great thing about distributed ledger technology is that it’s 24/7 365, as a payment happens. So we’ve now not just sent a message for a payment to happen, but we’ve effectively settled it in real time. In a lot of cases. Today’s world is about sending messages of payments that are happening but not settling on those until the end of the day. So we’re really talking about messaging truncated within the transfer of assets and value in and of itself, which for the first time really means cross-border real time settlement. So of course that brings speed. The transparency thing is interesting because when you start to think about cross border, you start to think about not just transfer value, but how do we run the appropriate checks and balances to make sure that we’re not sending money on behalf of a money laundering scheme or agency, transferring money not to a sanctioned individual or a sanctioned country or a politically exposed person. Maybe a part of that, now we’re talking about all the things that happen around the actual transfer value itself. And this is where it gets really interesting. We started to explore things like if an individual is able to transfer in CBDC. They may have a wallet that lives again on chain. And that is certified as a known participant and as a qualified participant and not someone that we need to worry about from a perspective of money laundering or a lack of insight into the identity of that wallet holder. So now we’re starting to think about, and we did in the pilot, think about those individual wallet holders as actually being individual retail customers. And that’s really where I think the greatest impact can be had is if we start to think about a retail CBDC as managing identities and the verifiability of those identities along with being able to transact in a highly compliant fashion. And that’s where the big difference lies between what we call wholesale CBDCs and retail CBDCs. So I’m hoping that the white paper lays out probably one or two elements that I missed, but those were the critical elements, you know, for me.
• And Tony when we’re done, let us send you the link to the white paper and maybe you could post that somewhere where your viewers can see it. ‘Cause I think the white paper is quite comprehensive and I think it lays out, maybe it dispels some misunderstandings. But the important thing about this pilot project, it was the first of its kind to test a US retail CBDC and I think perhaps even more important first conducted entirely by the private sector of any retail pilot that I’m aware of, in any currency, in any denomination, which proves my point that if we’re going to, if the United States is to develop a central bank digital currency. Then it very much must involve the participation of the private sector. To make sure that we get the aspects of that right, that reflect private sector, you know, the appropriate role of the private sector in a democratic society.
• Yeah, absolutely. I definitely in agreement with you there. So Kevin, you know, on the note you mentioned that, let’s say a wallet that a retail CBDC wallet, I’m assuming Western Union would create the interoperability or the connection that if you’re using. let’s say you’re in the Philippines and there’s a CBDC and you have a respective wallet that works with that CBDC maybe it’s from the government. How would Western Union integrate with that such said wallet? I’m curious about the dynamics of that and the bridging.
• Yeah, I, you know, so much of this comes down to the technical choices and design principles that are being made. And we had to make some assumptions simply because there is no US CBDC today, there is no Filipino CCBD today. But I think what you’re raising is when we created this with our partner, we were essentially sitting on the same tech stack, meaning layer one technology. I mean your listeners are familiar when we say layer one, we’re talking about this construct of how transfer gets valued, or sorry, how value gets transferred and what is the consensus mechanism and all that. If you imagine a world where that’s not the case, where perhaps the Philippines Central Bank decided that we wanted to design it this way and the US Central Bank decided we wanted to send this way, then your question becomes an even more important question, which is there a great interoperability between the two? Am I able to recognize the account of Kevin Mole, if I was actually a Philippines financial institution? I don’t know if some of that could be techno. And I imagine some of it is also quite frankly written into our law and regulation, but I can’t address those right now. What we designed, it was really a way that showcased the ability to, if we had a really highly interoperable means of technology, that it would solve a lot of the transparency issues. A lot of the speed as well as a lot, and I didn’t really hint on this, but the efficiency of associated with sending money overseas would be greater and I think the end users would benefit as a result of that efficiency. But that’s really up to the governments and to the lawmakers to decide do we want to build this within the construct of a domestic payment system, or do we wanna build this within the construct of moving money internationally? The great thing about Chris and Jennifer asking us to do this is for the first time we’re actually thinking about this is not just a domestic issue because so much money, particularly US dollars, when we start to talk about US dollars, so much of that is really driven by what lives and how payments happen outside of our, you know, of our borders. And we can’t forget about that when we think about central bank digital currency.
• And let me jump in here Tony with a point, you know, today, you know, in the pre-digital analog system of money, money’s interoperable with each other primarily because the means of interoperability, foreign exchange markets and foreign exchange futures markets. Which are really where and exchange value of money is set, are operated here in the United States. As we go into a future where money will move on, distributed network rails, some of which will be centralized and operated by the People’s Bank of China, as in the case of the digital Yuan. Interoperability is not a given. Interoperability needs to be achieved through hard work and a lot of the global meetings that are taking place now to bring harmony and develop common standards for interoperability of digital value systems. And because the United States is somewhat paralyzed by this political debate in here. It’s not taking a leadership role as the interoperability standards of these global systems is being set. And that’s where the Digital Dollar Project encourages the United States put aside the decision of whether we deploy a CBDC or not. The United States cannot seed leadership on this new wave of digital value innovation to our economic adversaries like China and our economic competitors like Europe. We’ve gotta have a leadership seat at the table as interoperability is being determined if we’re to preserve the dollars role as the world’s primary reserve currency in the digital future. Now there may be plenty of your listeners that don’t want to see the dollar play that role, you know, they may be disappointed in its approach to sanctions policy or other policies, that’s fine. But I for one and I think many understand that the dollar’s role has been on balance. A net good not just for American citizens, but I think for the world in allowing a common standard of value for global commerce and global trade. And the mission of the Digital Dollar Project is to make sure that that or at least to future proof the dollar for that world and the world to come. And to do that, we need to be involved in these conversations are taking place about interoperability of both CBDC and stablecoin systems in the future. And last point is, you know, that’s a big reason why we partnered with Western Union in examining the role of money transmission, sovereign money and money transmission through this important project. It’s a first step of what we hope will be many, but a very first and important step looking at retail use of the dollar in cross-border transactions in that digital future that I talk about.
• Yeah, absolutely. So Chris, what do you think about these BRICS countries and, you know, many looking to abandon the dollar when it comes to trade and so forth. Do you think to your point of, you know, if we were to have a digital dollar and it aligns to the constitution and things along those lines, it could help win some of these countries back in commerce and things along those lines? I know that’s a very complex question, there’s a lot of layers to it, but you know, what are your thoughts on it?
• Well, to a large extent, the role of the dollar for the past 30 years or since the end of the war period, but mostly since we went off the gold standard in 1970s has built upon its relative value and its stable value. So we think about its reserve currency as a result of its core value. I would argue that in the digital future it’s going to be less about value and more about the values. The values of a dollar, you know, money carries with it values. It projects values. Hopefully the dollar has stood for things like, free expression, free enterprise, free commerce, a global rules-based world where people could trade across borders without undue surveillance, without undue censorship. As we go into the digital future, there’s no question that some of these BRICS countries, namely China for example, are developing a digital currency with very different values. Values of actually fairly sophisticated technology, but also with suppression of competing instruments like Bitcoin and Ethereum with surveillance of its citizens and probably its foreign trading counterparties activities and worse censorship of certain activities. If the United States were to follow that approach, I think it would be a disaster for dollar and its reserve currency status. And I think many people probably share that view. Certainly I think Tom Emmer and others would share that view. But here’s the flip side, if we do the opposite, in fact if we’re true to our core principles as a democratic society. If we make the dollar an expression of economic liberty for lawful activity, if we make it a symbol of lack of government surveillance that we follow principles of reasonable cause before any type of interdiction. I think we will set the dollar up to be a champion for those values and the currency that people will aspire to to hold. So I think the decision’s really in the balance if we get the values right in digital currency, and the same applies by the way to stablecoins as it does to digital currency, right? We’ve been too free to give our information away in the first wave of the internet, the internet of information. We must make sure that we have the same restrictions on private operators of centralized systems, whether they be governments or non governments in this digital future. But if we get the values right, I think the dollar could be a reserve currency for generations to come and a currency that people will aspire to hold. But those decisions have to be made now. And one of the things that we do at the Digital Dollar Project is really try to raise public consciousness that the digital future of money is coming. The world will be one of both stablecoins and CBDCs. And the real issue is not so much the value, but the values that are encoded in those digital technologies. At least for those of us who are fortunate enough to live in free and democratic societies.
• Hmm, for sure.
• And hopefully for those who are not free in democratic societies to gain a degree of freedom.
• Kevin, as far as you know, the pilot and the results that you have, what are the next steps with, you folks at the Western Union as well as the Digital Wallet Project? Are you gonna run additional pilots or are you planning to put this into production and is there a timeline?
• We don’t have a timeline. I think part of this has been to take a step back. we did, as I mentioned, address some next step questions. The question that I’d like to kind of look into as a company that has to make sure that any transfer of value is highly compliant, is how can we address that question of identities, identity verification was well as understanding particularly the, quite frankly, the benefit of being able to monitor a transaction in a network of events. If you can imagine, you know, and I know you’ve had folks that represent some of the transaction monitoring companies that look at public blockchains and try to make sense of the world. I actually think that we can do a better job of monitoring transactions when we have the level of understanding at the network level. And so we’re starting to bring in things around understanding how we can monitor transactions on a blockchain. How we can understand verifiable credentials potentially either on the blockchain or somehow tied to a blockchain so that the process becomes easier for our senders and receivers. And so these are a lot of the non-value transfer questions that quite frankly we as a team have been looking into. We also at Western Union are, you know, we are considering other places. I think you asked earlier on the podcast we are thinking about digital assets in the context of our business. CBDCs are one angle that we need to stay close to, but the fact of the matter is there is a lot of innovation that’s happening in the space and we need to be a part of that. Stablecoins have been around for a while and will be around, we saw obviously announcements from PayPal and the like, where we think that it makes sense to have the long-term perspective of central bank digital currencies, but also understand the near term impact. And opportunities related to some of these technical innovations that are being driven by the private sector. And I would say that there are countries we deal outside the us I know we, you know, the focus here has really been the United States. But if you can imagine that there are places like Europe and others that are further advanced. So we wanna make sure that we’re involved in those discussions as well. So we’ll probably seek to be more involved internationally outside the US as well.
• Got it, and you know, I’ve spoken to your competitors like such as MoneyGram and they’ve been using USDC, I’ve spoken to the folks at Circle and Stellar as well. And the process of exploring all these things, are you planning to do any pilots around USDC or other stablecoins or still, you know, those things are still open here?
• Well, I can’t publicly state just yet because there hasn’t been any announcements about what we will do. We are exploring it for sure. I think it’s the right thing to do for us as a business before our customers. I would state this, our approach to any of this has to be what drives value for our customers. And that could be faster payments, more efficient payments. I spoke a lot about transparency, right? And how do us effectively bring better services and products to our customers, if it means stablecoin. Absolutely, and so I think it behooves us to explore a number of innovative channels, including cryptocurrency and stablecoins. But I do do think that the overarching principle has to come back to our customers at the end of the day. In some countries our customers are more familiar with cryptocurrencies. In some countries they aren’t. I could tell you that we did a survey in Europe and the US, looked at money transfer customers, and those tend to be disproportionately aware of, or disproportionately holders of cryptocurrency. I think some of it has to do with their international footprint in the world. Whether they’re migrating from a developing country that happens to have high adoption like Vietnam or other places in Asia or Latam. So we do see that our customers are interacting with cryptocurrency. We’re not blind to that. We just wanna see how we as a company can deliver a better value to them using cryptocurrency.
• Yeah, absolutely. There were reports over the years, I think going back to since 2018 and so forth of Western Union potentially doing some pilots with Ripple. Can you tell us about that? Is there an existing partnership and are you working on anything?
• Yeah, it’s funny how some of this gets taken outta context. In 2018, there was a pilot that was announced and the results of which that were heavily discussed publicly by our previous CEO as well as Ripple. I won’t talk about that. I wasn’t around then. I would tell there was a recent tweet that said something about the pilots, I think incorrectly and noncommunicating that this was a recent phenomenon, a recent thing that it was not, it was back in 2018. It just goes to show you like how the crypto space kind of news travels and sometimes the news is not always accurate, but that’s part of the things that we, you know, I’m here to make sure that I am putting forward, again, great products and services for our customers. If we have one, I would love, Tony to come back and tell you exactly how our customers are using it and the value it brings. But for now that particular piece was from some time ago.
• As far as the remainder of 2023 and maybe looking ahead to 2024, you know, what are your top priorities? I know you, you probably touch on some of them, but anything else you want to highlight that you and the folks at Western Union are looking to potentially go live with? And as much as you can share, I know there’s some things on there, probably wraps for release.
• Well, I mean I think whether it’s Western Union or anyone else, I think a traditional financial institution needs to get comfortable that there are, there’s a set of regulations that protect our customers and protect us. And what I mean by that is we are an old institution. We’ve been around for over 170 years. The reason we’re doing that is because we have really good focus on compliance regulation and working within the law. And anytime you kind of push new technology, there’s always this kind of, this lag that happens where the private industry pushes it and then, you know, others need to kind of catch up to it. In a lot of cases, we’re there talking to our regulators, educating them, and the education is important because we wanna set up a world, as I said, that can bring the value of a digital asset to our customers. And so I will look forward to those discussions advancing. And hopefully, you know, we’ve seen, I think it was last week where there is a law now in front of Gavin Newsom in California. That is more or less a repeat where it was vetoed last time. It may not be veto this time because you know, the news around FTX and others are finally catching the attention of people who are there and voted into power to protect consumers. And so I think we’re seeing some advancements in this discussion. Can we see some regulations and guidance in place so that we can make sure we’re doing it in a way that’s responsible for our shareholders and responsible for our customers. And so I’m hoping that in 2024, Tony, we see a lot of advancement within the regulatory structure, clarity and whatnot, particularly in the US, I think we’ve seen variations of that, of further advancement in other countries and maybe less advancement in other countries. But the US for me is particularly one where we care a lot about advancing that discussion.
• Yeah, absolutely. Chris, you know, along the lines of what Kevin is saying, there’s obviously a couple bills in the house, there’s one in the Senate, there was some markups on the House crypto regulation bills under Patrick McHenry and so forth. Any thoughts on, you know, if we could potentially see something by the end of this year or early next year?
• Yeah, we really do need Congress as the representative of the people to step into what so far has been a sort of a regulatory jump ball in Washington. And I’m hopeful that we’ll get movement in the House. I’ve had the pleasure of speaking quite regularly to Chairman McHenry and I know he’s got a lot of determination to get both stablecoin and crypto legislation passed. I think that in the summer I thought we were in pretty good shape on both of those. I think the issue with stablecoin seems to be the role of the states in licensing stablecoin platforms. On the crypto legislation. There is some resistance from the administration, but I do think McHenry has the determination and let’s hope that he can get something passed. Now, I don’t think the process or prospects are as good in the Senate. I think there is a real generation gap in the center, which tends to skew demographically older than in the House. And for a generation that didn’t grow up in a networked era, even an information networked era. I think there’s struggle to understand this new innovation and I think there’s sometimes a confusion between protecting the financial stability and protecting the status quo. I think there’s a perception that protecting the status quo will somehow protect financial stability, you know, well unfortunately the status quo had three more bank failures just this year alone. So the status quo isn’t necessarily the right way to protect stability. But I think the prospects are not as good for legislation in the Senate as they are in the House. But I think a House victory would be important. I think we perhaps set this issue up going into the next election. Look, I wish we were further along the road here in the United States and sometimes I think that it’s going to take a new generation to move this through. Less so than politics of left and right. I think it’s more a generational issue, but you know, whether it’s in this Congress or in the next Congress, it’s only a matter of time before the United States official sector. I think accepts this new internet of value that’s coming and the changes it’s going to bring with it. And starts thinking about how to achieve financial stability in a new digital order. And as we feel the Digital Dollar Project, it starts with making sure that the dollar and the values that has traditionally stood for is projected forward into this new digital future of money. Regardless of whether the US adopts a CBDC or not, we need to make sure that economic liberty properly balanced with appropriate law enforcement based upon traditional notions of law enforcement are projected into this new digital future money. And I’ll leave you with this, Tony, if we get that right, we’ve got everything to hope for. I mean, I think that the dollar could enjoy three more generations of global primacy if we make sure those values are encoded in it both through the private sector initiatives and public sector initiatives alike.
• Hmm. I would love to get your thoughts on, and Kevin as well on the institutional adoption of crypto. It seems we hit a tipping point this year with BlackRock filing for a Bitcoin’s spot ETF. Charles Schwab, Citadel and Fidelity launched crypto exchange and just today it was reported that Citigroup launched a digital token on a blockchain. It’s private, but JP Morgan’s also looking to the same. What are your thoughts on these big names and a lot of TradFi Wall Street players getting involved in crypto?
• Well I think it’s a huge step forward, Tony. I think it is, you know, the first phase of this innovation were led by new entrants, names, people hadn’t heard from. Now we’re seeing traditional finance move forward in a very big way. Underneath a lot of those projects you mentioned are initiatives coming out of their very C-suites encouraging teams and the firms to set foot in this, so. And they’re not moving here without their traditional government relations people making known to the regulators and the Congress what they’re doing. They’re going about it the way you’d expect, highly regulated TradFi firms to do so with a lot of information being passed to the regulators and they’re moving forward. I mean you mentioned the recent announcement of PayPal, you know, the Federal Reserve was surely aware of that and that project’s moving forward. So these are important building blocks. It means we finished the phase where this was entirely dominant by new entrants and entrepreneurial firms. It’s now coming into the core TradFi sector, which is a sign of the maturization of the sort of digital network future of value. This is coming, there’s no slowing it down. It’s almost like the last ones to get the joke are some of our most senior policymakers in Washington that are, you know, that grew up in a world of passbook savings accounts and three day check settlement. And for them, there’s nothing wrong with that old world. But the fact of the matter is time moves on, technology marches on and eventually their seats will be taken by a younger generation who intuitively understands this. This Is all coming, the trajectory is not uncertain. and trajectory is certain. What’s uncertain as to whether this new digital future of money enslaves us or empowers us. And we the people need to make sure it’s the latter and not the former by making sure the values that are eternal, hopefully in a democratic society are reflected in this new future.
• Yeah, absolutely. Kevin, any thoughts you can share?
• Yeah, I was just gonna say, I mean Chris is absolutely right and in some ways, you know, and I started my journey with buying my first bitcoin 11 years ago. And since then I’ve had to learn a lot about what it means to solve for proof of worked equations or understand consensus and proof of stake. And these are terminologies and understanding of this very new technology. And so when you see these news articles about traditional finance, it kind of, it helps push the discussion further into entities that may have nothing in the roadmap that says cryptocurrency or digital assets. All of a sudden now have to perk their ears up, and understand and learn about what this is. And kind of catch up to a lot of folks who have been there for a decade and say, okay, it doesn’t seem to be going away. In fact, in some cases it seems to be accelerating despite all the other things that have happened in this industry. This is one that still continues to not just persist, but to grow. And I think it’s a positive view that say these traditional financial institutions are taking it seriously and now the regulators, because they’re having Citi or whomever come to them and say, hey, this is what we’re doing. Now their ears need to perk up and they need to be highly cognizant that this is not gonna go away and it’s something that needs attention. I’m all for it. I’m glad that we’re seeing these advancements and that we’re hearing about these because it just pushes the envelope even more.
• For sure. Final question here, Chris, anything that you can highlight for the remainder of 2023 for the Digital Dollar project? Are there upcoming pilots? Any new initiatives that we should be aware of?
• Well stay tuned because the Digital Dollar Project has got a very, very active schedule. And you know, we work hard to try to engage as broadly as possible within the private sector. We work with a number of folks that are focused on issues of privacy, but also of financial inclusion. Technology people focus on interoperability, focused on technology resilience. We’re engaging ourselves in a lot of the international conferences that are looking to set global standards. And we serve to be a conduit between the private sector and the official sector to hopefully move our thinking along beyond what I have to say is fairly stale Washington debates over CBDC or stablecoin, I mean honestly we need to think about this future is coming. What’s the best way to make sure that we bring our values into it? We’re not gonna be able to resist CBDCs. Even if the United States doesn’t do one, Europe is doing one, the Brits are likely to do one. We’re gonna be facing a future of major central bank digital currencies. Every American major company, that has international operations like Western Union are going to be dealing with dozens of CBDCs in the future. So we can’t just ignore, even if we don’t do one and the decision hasn’t been made and shouldn’t be made here in the United States ’cause we don’t know enough yet. but even if we never do one, that doesn’t mean we can just insulate ourselves from dealing with CBDCs, we can’t, it’s coming. Do we want American values part of that, of the global protocols or not? If we do, then we need to be present at those global conclaves and similarly stablecoins are coming and I don’t think enough thought has gone there. Into how do we make sure that stablecoin operators are insulated from government and political pressure in the same way that our social media platforms censored speech about, you know, the origins of COVID or the COVID vaccine, what have you. Whatever one may feel about that debate. Isn’t it troubling that politicians were able to influence those platforms as to what they can say and what they couldn’t say? Well, imagine if those same politicians could go to stablecoin operators and say, hey, unless you do what we want, we’re gonna pull your license, right? Unless you ban this activity or censor that activity. So again, I’m not accusing stablecoin operators of anything but the best intentions, but how do we make sure they don’t come under that pressure in the future? So my message, Tony, you’ve got such a great listenership, I mean, oh my God, your listenership are the most active people in the Twitter sphere. And my message is we need to be active. We don’t have the luxury of picking or choosing the future of saying, well we like stablecoin, so that’s the way the future should be. ‘Cause the future’s gonna be all of the above. We’re like in a Cambrian ecological explosion of activity and the future’s gonna be all of the above. And we need to make sure that we’re out there expressing what our values. And of course there’s the decentralized world. And we need to make sure that governments that launch a CBDC don’t try to ban as China’s doing, decentralized words So we need to think broadly about the future and be as active as we can to bring these values of a democratic and free society to all of this innovation. And that’s my message to your great listenership.
• Chris, Kevin, thank you so much for your time. Great conversation. And Kevin, I certainly would love to have you back on. As you know, Western Union continues development and making payments, you know, faster using crypto, blockchain. Chris, always a pleasure and I’m certain we’re gonna be talking again maybe in another few months.
• See you soon
• Thank you Tony.