| Happy Friday, and welcome to the latest edition of our Future In Five Questions feature. This week I spoke with Jennifer Lassiter, executive director of the Digital Dollar Project — a nonprofit that encourages public research and discussion of a potential U.S. central bank digital currency. Lassiter makes a passionate case for tokenization as the future of digital payments, counters arguments that CBDCs are the quickest route to digital authoritarianism and talks about the DDP’s work educating lawmakers and staffers on the Hill. This conversation has been edited and condensed for clarity: What’s one underrated big idea? Tokenization. In May 2020 the Digital Dollar Project published an inaugural white paper in which we laid out a model for a potential U.S. central bank digital currency. That model included eight key tenets, one of which is tokenization. A token-based digital dollar would not require third party intervention for it to be verified and transferred, which is a significant departure from today's account-based transactions. The tokenized digital dollar would be actual money, in the form of a digital token or a bearer instrument. That could provide new levels of portability, efficiency and accessibility. A natively tokenized U.S. dollar could complement an account-based FedNow system, which we hope to see launched in July, or Fedwire services that have existed for a long time, which would provide the transactional benefits of a digital currency combined with the trust and low risk of central bank money. What’s a technology you think is overhyped? CBDCs as tools of surveillance and control, which is what we're hearing about across the political arena right now. The fundamental right to privacy, which in the United States creates our financial freedom, is completely valid. But the notion that the U.S. should not experiment, and understand that the CBDC can be private by default and secure by design, protected against all forms of financial surveillance potentially cedes U.S. leadership to not only our economic adversaries but also to our economic competitors. We're working very hard to see if we can technically achieve those privacy requirements, and then find a policy framework to put them in place. What book most shaped your conception of the future? “CryptoDad: The Fight for the Future of Money” by former CFTC chairman and DDP co-founder Chris Giancarlo. I always like to point out that, yes, the government can regulate crypto, and this is a great example of where that process started. It’s also an example, in really simple, understandable terms about the workings of Bitcoin, crypto, and CBDCs, and you get the origin story for the Digital Dollar Project. The book was published before I became executive director, and I was heavily inspired by it at that time while working within the federal government, thinking about different government systems and how we could look at the digital asset ecosystem. What could government be doing regarding tech that it isn’t? There are several vehicles by which the government could explore and innovate with CBDCs. One could be public-private partnerships re-imagining the rails of our payment systems, preserving privacy while balancing security needs. Additional research through open competition, or maybe federally-funded research institutions, could evaluate those trade-offs and deepen our understanding and application of privacy-enhancing technologies like homomorphic encryption, zero-knowledge proof, or secure multi-party computation. Second, I would say completely independent of whether the U.S. decides to deploy a digital dollar it’s important that the government provides leadership in international digital currency standards-setting. Without the United States really showing up at that table in a leadership capacity, we lose the opportunity to weigh in on which democratic principles are most critical to our global community. What has surprised you most this year? How the world is turning to digital money. The Atlantic Council has a CBDC tracker that shows several things, including the technical and policy design choices of CBDCs across international regions, and within the United States. Countries representing 95 percent of the global GDP are now exploring a central bank digital currency. All G7 economies have moved into the development stage, and 18 of the G20 countries are now in advanced stages of CBDC development. As to what form of digital currency will be predominant, that’s yet to be seen. It could be a stablecoin like USDP, cryptocurrencies like Bitcoin or Ethereum. It could be CBDCs. But ultimately the goal is to create a network effect with tokenization of the global financial community. A digitally-native currency with the right properties could become the functional currency for any given country, any trade sector, any geographic region, political, social, commercial environment, you name it.
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