Yahoo Finance Presents: Former CFTC Chairman J. Christopher Giancarlo

On this episode of Yahoo Finance Presents, Former CFTC Chairman J. Christopher Giancarlo sat down with Yahoo Finance's Jennifer Schonberger to discuss all things cryptocurrency. He discusses the current challenges facing crypto in both the economic and regulatory arenas, modernizing the American financial system, regulation of cryptocurrency exchanges, and the potential for an American central digital currency. These topics and more are discussed in his new book coming out October 26th titled "Crypto Dad: The Fight for the Future of Money."

Video transcript

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JENNIPHER SCHONBERGER: Welcome to Yahoo Finance Presents. I'm Jennifer Schoenberger. Joining me now is the former head of the CFTC, Chris Giancarlo. He was responsible for putting together crypto derivatives, as well as futures on derivative exchanges. He's got a new book coming out October 26 called "Crypto Dad-- The Fight for the Future of Money". Chris, welcome to the program. Thanks so much for joining me.

J. CHRISTOPHER GIANCARLO: Jennifer, it's great to be with you. Thank you for doing this.

JENNIPHER SCHONBERGER: What do you think are the biggest issues facing crypto right now?

J. CHRISTOPHER GIANCARLO: Well, it's actually the same issue that's been facing it for a while. What is the right regulatory envelope for it to fit into? And what is the American public policy with regard to crypto? And then what's the best way to realize those public policy goals in the crypto landscape?

As I explained in my book, I believe that the emergence of crypto is very big. This is a multi-generational change in the nature of finance and the nature of money. The internet is going to do to finance and money itself what it's done to retail shopping, what it's done to information, what it's done to journalism, what it's done to so many walks of life. And now it said that amazing multi-generational, century-long evolution called the internet is doing its magic to finance.

JENNIPHER SCHONBERGER: Yeah, I want to get back to you on the innovation and the potential economic ripple effects. But before that, let's drill down on the regulatory piece. Like you said, we keep hearing the space needs to be regulated. But what does that tangibly look like to you? What is it that agencies and Congress need to do now?

J. CHRISTOPHER GIANCARLO: Well, so let's start with the landscape pre-crypto. We've got statutes that were written in the 1930s, 90-year-old statutes that were written for an analog face-to-face financial world. And we've been repurposing them, utilizing them for a lot of innovation.

But now we've got something that's fundamentally different than what we've had before. And we need to think about whether those regulatory schemes, without any further Amendment are fit for purpose or whether we do need to make some adjustments to them to better accommodate this technology.

But it all starts with deciding, do we want to use this technology to modernize-- as I think we should, to modernize what's really a pretty antiquated financial system? Our financial system is durable and venerable. But it's old and it's creaky and it's showing its age. It's under inclusive.

A good portion of our fellow citizens don't have access to a full range of financial services. It's slow. I mean, taking three days to cash a check and for small businesses to wait 30 days for payment is a burden on the economy. And it's expensive. The cost of transactions cost Americans 5% or 6% a year of GDP.

JENNIPHER SCHONBERGER: OK. So how do we apply-- you say the current financial regulations are too antiquated. So it sounds like we need a whole new set of regulations that don't stifle regulation. What could that look like?

J. CHRISTOPHER GIANCARLO: Well, I think it's a combination. I think it's a combination of using what we have as we did at the CFTC to further innovation. But we also need some changes to them that take those regulatory structures and make them more adaptable to a new world.

JENNIPHER SCHONBERGER: OK. So do you think crypto exchanges like Coinbase should be required to be registered with the SEC?

J. CHRISTOPHER GIANCARLO: So we have long had a regulatory structure for exchanges to be regulated with if they're commodities exchanges, doing derivatives on commodities to be regulated, the CFTC, for securities exchanges to be regulated with the SEC. That's our current structure.

What we don't have is a regulatory mandate for what's called spot, physical delivery exchanges of non-securities crypto, which is basically Bitcoin and Ethereum. So I believe that's a gap in our 90-year-old structure.

So one of the first steps I think Congress should do is have a regulatory regime for non-securities crypto, and it should be one that recognizes the difference of this innovation, focuses on investor protection as our regulation of exchanges does, but gives it a holistic approach that is not trying to stifle this innovation, but allows it to flourish, but in a safe and a well-regulated manner.

JENNIPHER SCHONBERGER: You mentioned digital currencies. The US Federal Reserve considering a central bank digital currency. They're doing due diligence on the pros and cons. China has already launched its own. For the US to remain a global economic dominating power, do we need to adopt a central bank digital currency to ensure our competitiveness, to ensure that we continue to lead the economic race? Is this the new space race, if you will?

J. CHRISTOPHER GIANCARLO: Well, so I wrote an OpEd in The Wall Street Journal two years ago in which-- two years ago this month in fact, which I said it is the new space race. The China's launching of its CNY, its digital currency is the equivalent of Russia launching Sputnik. And the rest of the world is experimenting with digital currency.

I don't know if the United States absolutely needs to adopt a central bank digital currency this year or next year, but the United States absolutely needs to be at the leadership table in developing this innovation. We have the world's strongest currency, the most important currency right now. But technological modernization of any infrastructure is always a good thing.

In the United States, we've taken for granted our physical infrastructure for way too long. Our bridges and our tunnels and our airports which were once state of the art have all fallen behind the times and are no longer global standards. Are we going to allow our money as well to fall behind the times when the rest of the world is moving rapidly forward and creating digital tokenized-based money?

JENNIPHER SCHONBERGER: Yeah. To your point, do we need to be thinking about the digital currency and the technology that underpins all of this as not just a new payment system and a new way to wring out costs, and as you said, perhaps help with financial inclusion, but as a new way to drive economic growth? For so long, we've had low productivity here in the United States. Could this be the go go 90s, the internet next phase that we've been waiting for?

J. CHRISTOPHER GIANCARLO: Jennifer, you are so right. This is much more than about digital currency. And China sees this much more than about digital currency. They see this as the way to create the world's first fully integrated, fully networked digital economy.

All transactions in their economy-- whether it be securities transactions, future transactions, commercial lending commercial payments, retail payments, will be fully networked with their digital currency as almost the software operating system for a digital economy. And that will wring huge amounts of percentage points out of cost and latency of their economy. It will drive the world's fastest growing economy into hyper drive in terms of speed and efficiency.

And we talk about currency zones. We talk about the dollar zone in North and South America. We talk about the euro zone. Those are zones of informal influence. They're zones of sort of analog importance of one currency compared to another. They're not fully networked digital zones of networking.

And what China is going to build is a fully network currency zone. We're going to talk about currency zones in the future is fully digital networks. And the United States needs to be thinking about the role of the dollar in worlds where you have fully networked currency zones. And that's what we need to be exploring this in the United States as well.

JENNIPHER SCHONBERGER: Do you think we ever get to the point where we're using cryptocurrencies like Bitcoin to purchase shampoo or exchange dollars for crypto? The co-founder of Coinbase says that at some point in the future, kids are not going to have bank accounts anymore. They're just going to have digital wallets.

Certainly, you saw El Salvador adopt Bitcoin as its legal tender. Do we ever see anything as pervasive as that in the United States, whether it is Bitcoin or something else or maybe it's the form of the digital dollar, central bank digital currency?

J. CHRISTOPHER GIANCARLO: Yeah. So I'm a big believer in Bitcoin, perhaps not so much as a potential as a retail payment system. But for maybe its potential to be the digital equivalent of gold, a hedge against a decline in value of sovereign money through inflation and profligacy by nation states. So I think I sneak Bitcoin in that area.

I think that nation states are going to move forward, including the United States, with creating sovereign digital currency. And I think because that will be useful in paying taxes and other government obligations. It will be the dominant form of payment systems in most economies.

However, as I say in my book, I think money is for, it just as-- it said that war is too important to be left to generals. I think that money is too important to be left to central bankers. I think society has a big role to play in what digital money looks like, including in the absolutely critical area of privacy and censorship resistance.

If governments use digital money to both invade people's privacy and to censor their transactions, then people will go to other forms of non-sovereign money. And in fact, if governments are profligate in their issuance of digital currency, then it only make Bitcoin stronger as in a sense the same relationship that physical gold has to Fiat money, I think you could see Bitcoin having to sovereign money issued by governments.

JENNIPHER SCHONBERGER: You say that financial market infrastructure for payment systems is archaic. It's not well prepared to weather this next wave of financial innovation, unless it's also modernized. But what's the risk that crypto, even with its innovation that could fill the gaps, on the flip side, could lead to a financial crisis without proper oversight because it's still very much in the shadow banking system?

J. CHRISTOPHER GIANCARLO: Yeah. So I don't think it's either right. When the first wave of the internet came along, we didn't put up the resistance to it. We harnessed it. Well, what we've got to do is harness this innovation with thoughtful regulation. Remember, I am a former senior regulator. I believe in regulation. We've got to get regulation. But we've got to get it right.

JENNIPHER SCHONBERGER: Chris, thank you so much for your insight. Hope to talk to you again soon.