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Speaker 1: China's been working at a central bank digital currency for

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Speaker 1: some time, but now word comes that they may have

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Speaker 1: it up and running as early as the end of

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Speaker 1: the year, along with some other countries and also the

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Speaker 1: Bank for Innational Settlements. And the question is what could

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Speaker 1: that mean for the dollar to take us through that

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Speaker 1: Welcome down, Tim Massett. He is former CFTC chairman and

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Speaker 1: research fellow at the Harvard Kennedy School of Government. Tim,

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Speaker 1: great to have you back on bring us up to

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Speaker 1: speed on where that central bank during digital currency is

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Speaker 1: for China. We've talked about it before, but now we're

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Speaker 1: seeing reports maybe by the end of the year. Is

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Speaker 1: that plausible.

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Speaker 2: Oh, they've launched it, they're rolling it out, and you

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Speaker 2: know they've been at this for ten years. But I

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Speaker 2: think the more important immediate issue is that China and

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Speaker 2: other countries want to develop international payment systems that don't

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Speaker 2: depend on the dollar.

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Speaker 3: You know, China has a long way.

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Speaker 2: To go before the yuan would be a major international currency,

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Speaker 2: but they are working, as you know, with the BIS

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Speaker 2: and with Thailand, UAE, and Hong Kong on a platform

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Speaker 2: that would allow those countries to use their respective central

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Speaker 2: bank digital currency as they develop them to basically avoid

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Speaker 2: having to rely on dollar payment systems. And you know,

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Speaker 2: today the dollar is the key currency in international commerce.

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Speaker 2: Ninety percent of foreign exchange transactions.

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Speaker 3: Involve the dollar.

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Speaker 2: That's even if you're converting two other converted currencies. And

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Speaker 2: most international payment transactions in some way or another connect

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Speaker 2: to US banks because they involve multiple steps. You know,

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Speaker 2: when a corporation in Hong Kong pays someone in the

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Speaker 2: Middle East for oil, they each have a bank. Each

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Speaker 2: of those banks has a correspondent bank. There may be

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Speaker 2: another set of banks involved, and somewhere along the line,

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Speaker 2: a US bank is probably involved because dollars are involved,

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Speaker 2: and that's given US enormous leverage, and we've used that

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Speaker 2: to basically impose economic sanctions as an instrument of foreign policy.

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Speaker 2: So I think the more immediate issue is all these

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Speaker 2: countries who are looking at developing payment international payment mechanisms

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Speaker 2: that don't depend on the dollar.

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Speaker 3: Those are still a long ways away.

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Speaker 2: But we need to pay attention to that and make

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Speaker 2: sure we're looking at our own technology so that we

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Speaker 2: stay in the game.

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Speaker 1: So tell I can imagine where some country might say

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Speaker 1: we just assume not have to go through US banks

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Speaker 1: because of the sanctions that have been used so liberally,

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Speaker 1: I might say with US government. On the other hand,

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Speaker 1: would there be some countries's been a little reluctant to

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Speaker 1: have the Central Bank of Joe China know exactly what

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Speaker 1: their transactions were.

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Speaker 2: Absolutely they would, And again these other countries are long

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Speaker 2: ways away from creating their own central bank digital currencies.

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Speaker 2: But you know, the point is that international payments are

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Speaker 2: slow and costly as it is. You know, when you

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Speaker 2: get multiple steps in the transaction, and you get several

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Speaker 2: banks involved, and they're in different time zones, and they

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Speaker 2: have different operating hours, and they're all doing these compliance checks,

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Speaker 2: you know, that just creates a lot of cost. So

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Speaker 2: I think there's an interest, you know, the US should

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Speaker 2: have an interest in trying to modernize that anyway, and

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Speaker 2: that can also help maintain the dollar as a as

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Speaker 2: the primary currency of international commerce.

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Speaker 4: But well, I'm sure you as you know, I mean,

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Speaker 4: a big part of this right now, in terms of

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Speaker 4: the dollar dominance is still is tied to this idea

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Speaker 4: of convertibility as well. I mean, it's all rell and

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Speaker 4: good if the Chinese are able to come up with

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Speaker 4: something that's more efficient, but adoption, at least broad adoption

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Speaker 4: is still going to be I guess based on the

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Speaker 4: final currency that people really.

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Speaker 3: Want, Absolutely it will be.

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Speaker 2: And that's why I say, you know, China is a

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Speaker 2: long ways away from the yuan being I think a

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Speaker 2: significant currency in international commerce. But you know, we still

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Speaker 2: need to pay attention to these developments. Really, this is

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Speaker 2: about the next stage of money. Right we had money

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Speaker 2: in the form of metal coins, and then we had

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Speaker 2: paper notes, and then we have you know, electronic ledgers

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Speaker 2: at banks, and now.

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Speaker 3: We're talking about digital tokens.

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Speaker 2: And digital tokens can be in advance because they combine

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Speaker 2: the movement of the message information which today moves separately

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Speaker 2: on Swift for example, with the movement of the value.

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Speaker 3: And they can be programmed.

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Speaker 2: And that's also why a lot of countries are looking

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Speaker 2: at this. So you're right, you know, the US dollar

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Speaker 2: isn't threatened, but I think we do need to think

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Speaker 2: about the tech, our technology, so that you know, we

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Speaker 2: have a seat at the tables.

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Speaker 3: These international systems are being talked about.

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Speaker 4: Well since you went there, though, I mean, this gets

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Speaker 4: into the whole idea of crypto, or at least what

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Speaker 4: the promise of what crypto was supposed to be. I mean,

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Speaker 4: there are a lot of people that would make the

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Speaker 4: argument that maybe the threat isn't going to come from

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Speaker 4: another government and it's digital currency, but from something private,

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Speaker 4: like some of the cryptocurrencies that have commons have gone.

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Speaker 3: Of course, sure, I don't think it'll come from bitcoin.

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Speaker 2: I think, you know, we could see a role for

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Speaker 2: stable coins, meaning crypto tokens whose value is tied to

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Speaker 2: a particular currency.

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Speaker 3: We could see.

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Speaker 2: Those develop, and you know, I support having a good, regular,

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Speaker 2: natory framework so.

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Speaker 3: They can be developed.

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Speaker 2: I'm not sure that they'll be that significant, but I

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Speaker 2: think that's one way in which we should be supporting

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Speaker 2: the private sector to explore this. And you know, full disclosure,

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Speaker 2: I'm an advisor to PayPal, which is into this space.

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Speaker 2: But my point is we need, you know, we need

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Speaker 2: a strong regulatory framework so at least the private sector

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Speaker 2: can experiment with this in a way that doesn't create

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Speaker 2: excessive risk.

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Speaker 1: Tim, Are we any closer to that strong regulatory framework,

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Speaker 1: because you and I have been talking about this for

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Speaker 1: a couple of years now. At least people have sort

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Speaker 1: of said there has to be some regulation of stable COID,

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Speaker 1: and yet it isn't there are we getting any closer?

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Speaker 2: Well, right now, we have regulation at the state level,

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Speaker 2: and that's what PayPal fully complied with. There are efforts

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Speaker 2: to create a regulatory framework at the federal level, and

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Speaker 2: the House Financial Services Committee did adopt a bill trying

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Speaker 2: to move this issue forward. I was hoping it would

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Speaker 2: get more Democratic support, and I think there are ways

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Speaker 2: to address the Democrats' concerns. They, you know, want to

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Speaker 2: see a federal regime that makes sure that in so

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Speaker 2: far as we have state chartering as we do for banks,

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Speaker 2: that there's still a good set of minimal federal standards.

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Speaker 2: So I'm still hopeful, and I think, you know, all

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Speaker 2: this activity in the space may encourage Congress to focus

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Speaker 2: more on.

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Speaker 1: This tim As long as we're in the domestic regulatory framework,

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Speaker 1: why don't we talk about the SEC and some sort

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Speaker 1: of crypto ets because there are several applications in there now,

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Speaker 1: one of them, by the way, involving black Rock, which

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Speaker 1: is a pretty respected organization list that I checked. We're

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Speaker 1: going to get some SEC approval of ETFs for cryptocurrencies.

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Speaker 3: Well, we'll have to see.

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Speaker 2: I think there are about nine applications pending. You know,

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Speaker 2: the SEC has been concerned that the underlying market, the

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Speaker 2: cash market for bitcoin, still does not have a strong

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Speaker 2: regulatory framework, and you know, I got to agree with them.

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Speaker 3: That's something else I've called for and support.

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Speaker 2: So I don't know that they're going to approve it yet,

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Speaker 2: but we'll see.

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Speaker 3: They have approved.

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Speaker 2: Bitcoin futures ETFs, frankly because the CFTC approved the bitcoin

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Speaker 2: futures products. But I think the SEC is still concerned about,

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Speaker 2: you know, the lack of strong regulatory oversight in that

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Speaker 2: cash market.

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Speaker 4: Well, I am curious. I mean, to a certain extent,

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Speaker 4: it's kind of a catch twenty two. Shouldn't the CFTC

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Speaker 4: be the one sort of dictating what some of those

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Speaker 4: regulatory guardrails are going to be.

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Speaker 2: Well, the CFTC only has authority over those futures. They

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Speaker 2: don't have that spot market authority. And that's one thing

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Speaker 2: that some of the proposals in Congress would give them.

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Speaker 2: We just do not have today a federal agency with

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Speaker 2: clear authority over the spot market for bitcoin and ethereum

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Speaker 2: and other cryptotokens that unless they're considered securities. And of

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Speaker 2: course there was some recent activity in that space where

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Speaker 2: the SEC partly won and partly lost the case involving Ripple,

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Speaker 2: so you know the law is still evolving.

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Speaker 3: But we need a stronger regulatory framework.

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Speaker 2: I've argued, let's not worry about whether it's a security

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Speaker 2: or a commodity. Let's just create a framework that sets

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Speaker 2: the basic standards that we need.

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Speaker 1: Tim, it's always so helpful to have you with us.

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Speaker 1: Thanks so much for the time that is Tim, Thank you.

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Speaker 1: He's the former CFTC chairman,