Davidoff Hutcher & Citron Chair of Federal Government Relations Jonathan McCollum discusses central bank digital currency regulation and Fed Chair Jerome Powell's comments on decentralized finance infrastructure.
- CBDC in focus once again today as Federal Reserve Chair Jerome Powell says there's a real need for improved crypto regulation that happened during a panel hosted by the Banque de France. Well, here to break down the current landscape surrounding CBDCs is Jonathan McCollum, Davidoff Hutcher Citron chair of Federal Government Relations.
Good to have you on the show. So a lot of people wondering, we'll take a step back here because obviously you have cryptocurrencies. You have stablecoins. And then you have CBDC. How do the regulations differ with these?
JONATHAN MCCOLLUM: Yeah, so it's interesting. The White House just issued a digital asset report, a comprehensive framework that came out where it touches on several of these aspects. The White House called on federal agencies to look into crypto assets, also explore central bank digital currency and the benefits and risks associated with those and then also asks agencies to provide more clarity and guidance for cryptocurrency companies here in the US as they move forward.
As we're looking at central bank digital currencies, there are hundreds-- over 100 countries currently exploring in the exploration phase of launching a CBDC. I think that there are a lot of reasons for the US to get involved to maintain its status as a global reserve currency and to promote American values as the CBDCs start to pop up more around the country.
- Because as we look at some of the countries leading the way when it comes to CBDCs, obviously China leading the way, how far behind, though, is the US in really getting that off the ground?
JONATHAN MCCOLLUM: You know, I think it's-- I think we're about four or five years away from being fully operational. But it's important to start now. And I think that the White House and Department of Treasury and the Federal Reserve are in that process. They're still conducting research and have further some further reports that they're looking at on design implementation techniques. But I think that that the US will be moving forward here shortly.
- And we know that Fed Chair Jerome Powell talked about the minimum criteria for a CBDC. The Fed has been tasked with some of this ongoing research that you were just mentioning. I want to have you take a listen to what he said about this criteria.
JEROME POWELL: If we were to pursue a CBDC, it would at a minimum have the following four characteristics. First is intermediated. Second is privacy protected. But third is identity verified. So it would not be anonymous. It would not be an anonymous bearer instrument. And fourth is transferable or interoperable. So we would be looking to balance privacy protection with identity verification, which has to be done, of course, in today's traditional banking system.
- Now, obviously, he was drawing comparisons to how the current financial system is governed, though. But as you talk about this four or five years, this is a multiagency effort here, including the Treasury as well. How much red tape do you think we're going to have to go through at each stage to really actually get this off the ground?
JONATHAN MCCOLLUM: Yeah, and Chairman Powell has said that he doesn't feel comfortable moving forward with the development of a CBDC without some congressional authorization for the Fed to do so. I know the Justice Department here in the US is looking into that, the legalities. But I think it's important for kind of all of government approach in order to move forward.
A couple of things that he touched on there. It's important for this to be an intermediated model and to run on existing bank payment rails. So this wouldn't be something where an individual consumer would have a credit or an account at the Federal Reserve. It would function through intermediaries, banks, community banks, payment providers, and then filter down to the consumer.
He also touched on privacy. And I think that's a really important component to what we're looking at. Our current existing laws that we have on the books here in the US really outline several areas of how cash should function, should be printed and minted. At the Department of Treasury, it then goes to the Federal Reserve where it's a liability on its books. And then it's distributed by the Federal Reserve out through existing channels going to banks and then different payment providers from there. And I think that's the model that we need to follow.
In fact, while there's certainly a lot of different agencies that are involved, the actual legislation that would be required or amendments to existing currency legislation is not all that complicated. And I know that there's folks on the House Financial Services Committee and the Senate Banking Committee that are currently working on some of those issues. And, you know, again, as I said, I think it's important for the US to get this process started and for the Treasury to really take the lead on what the parameters need to be and then rely on the private sector for different input.
I think once the law is in place, it's going to allow the technology to develop to meet the law's requirements. The technology is somewhat flexible. What we need to do is make sure that we maintain a lot of the values that we have here in the US in the way that our cash currently functions.
- And we know that a lot of these issues surrounding consumer protection when it comes to digital assets really arose from the sell-off that we saw in crypto. And really, the government really wanting to get an understanding because Bitcoin essentially developed because it was to address the unbanked. People who wanted decentralized financing. What sort of gap do you think CBDC will fill? And how do you see it relating to, perhaps, what we see happening with crypto markets?
JONATHAN MCCOLLUM: Yeah, I think a digital dollar would make transactions faster and cheaper because it would be final and complete in real time. And it also allows users to make payments to one another using risk-free assets. This is the same capability that we have again in the dollar-- physical dollar today. It would just be in its digital form. I think cash is the most financially inclusive instrument that we have. And by allowing for CBDCs to be put in place, it would allow folks that are currently unbanked to have access to a digital form of payment.
- I want to thank you for joining us this afternoon. Jonathan McCollum, thank you so much.