Understanding the STABLE Act and the Push to Regulate Crypto | Rohan Grey

Understanding the STABLE Act and the Push to Regulate Crypto | Rohan Grey

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The Hidden Forces podcast features long-form  conversations broken into two parts, the second   hour of which is made available to our premium  subscribers, along with transcripts and notes   to each conversation. For more information  about how to access the episode overtimes,   transcripts, and rundowns, head over to  patreon.com/hiddenforces. You can also sign up   to our mailing list at hiddenforces.io. Follow us  on Twitter @hiddenforcespod and leave us a review   on Apple Podcasts. And with that,  please enjoy this week's episode.   What's up everybody, my guest on this  episode of Hidden Forces is Rohan Grey,   an expert on the legal design and regulation of  digital fiat currency and one of the prime authors   of the recently proposed STABLE Act,  a piece of legislation put forward by   Congresswoman Rashida Tlaib of Michigan and  congressmen Jesus Garcia and Stephen Lynch   of Illinois and Massachusetts respectively. The stated justification for the bill is to  

"protect consumers from the risks posed  by emerging digital payment instruments   such as Facebook's Libra and other stablecoins,"  which the authors define as "digital currencies   whose value is permanently pegged to or  stabilized against a conventional currency   like the dollar and which pose new regulatory  risks while also representing a growing source   of market, liquidity, and credit risk." The news of this bill came out a little over a   week ago, and just a week after that, the Federal  Trade Commission along with the attorney generals   for 48 US states led by the state of New York,  filed an antitrust lawsuit against the social   media company Facebook in an effort to "stand  up for the millions of consumers and many small   businesses that have been harmed by Facebook's  illegal behavior." I want to submit that these   two events, the announcement of the STABLE Act  and the news about the Facebook antitrust lawsuit   are not disconnected. I believe that we are  in the early stages of a multi-decade cycle  

of increased regulation, taxation, and fiscal  spending that will dramatically disrupt the   prevailing economic assumptions upon which  investors, entrepreneurs, and business people   have operated on for more or less 40 years. And cryptocurrencies are not immune from that,   as is evidenced by the uproar the bill's  announcement has generated in the crypto community   over the last week. I think it was naive  to ever imagine that it would be possible   to integrate cryptocurrencies into the  broader financial system without paying   a steep regulatory price for the privilege. At  the same time, it's not clear to me what choice   the community would reasonably have had in this  matter, but regardless, we are where we are.  

My objective in today's conversation was to  get absolutely clear on the language and intent   of the regulation, not just as a standalone  document, but as part of a much larger regulatory   agenda that is being pushed forward by the more  progressive factions of the Democratic Party.   What is clear after speaking with Rohan for just  under two hours, is that much of this rests on   our definition of what money is and what we mean  when we talk about a deposit. This part of the   discussion unfolds mainly during the overtime,  because I spent most of the first hour of our   conversation trying to get absolutely clear on  what Rohan believes about the nature of money,   what he thinks the proper role of government  is and how he sees himself and his role as   an influential activist within the progressive  movement and as a prominent advocate of modern   monetary theory within government circles. This was not an easy conversation for me to have,   primarily because I disagree so strongly  with some of Rohan's most basic ideological   assumptions. I don't believe, for example,  that unemployment is a monetary phenomenon,   nor do I believe that it's the government's  responsibility to provide everyone with a   job. I also don't believe that our money should  be used primarily as a tool for public policy,   I think that's reckless. And I think it's partly  this type of technocratic mentality around money  

that's largely responsible for where we find  ourselves today. Rohan would disagree with me.   He would emphasize, I think, that policy makers  haven't actually had the public interest in mind.   And I think this is one place where we agree. I  think we both agree that we are currently living   in a public private oligopoly, that our financial  system is deeply corrupted, that our regulators   are captured and that our money has been co-opted  and is being actively used to privatize gains and   socialize losses in a way that is destabilizing  our society and our political system.   My goal was not the dispute every single  point of disagreement, because if I did,   we'd never get anywhere. Instead, I wanted to  give Rohan an opportunity to really make his   case and explain his intentions and objectives  and helping craft the STABLE Act as well as   other pieces of legislation targeting the  crypto FinTech and financial industries that   we can expect to see going forward. As you will  learn, this bill doesn't just impact crypto.  

It impacts the entire euro dollar market. We're  talking about trillions and trillions of bank   deposits denominated in US dollars but not  subject to US banking regulations. This bill   would directly affect that. They would also impact  companies like PayPal and other payment providers   currently registered as money transmitters, but  who under this act would potentially need to   obtain a banking charter and get FDIC insurance  or otherwise maintain reserves at the Fed.  

I genuinely believe that regulatory risk is being  deeply mispriced in financial markets today,   not just in crypto. And regardless  of what your personal beliefs are,   regulation is coming. The question is, what is  it going to look like? And how is it going to   impact you and your community, whether  that community is your local community,   your business community, or your crypto community?  This conversation is meant to help you begin to   wrap your arms around it, to understand what you  think about it and how you want to respond to it.  

And with that, please enjoy this insightful and  engaging conversation with my guest Rohan Grey.   Rohan Grey, welcome to Hidden Forces. Thank you for having me.   It's my pleasure having you on, Rohan. So, we're  literally doing this about 30 minutes after you   completed a conversation with Frank Chaparro on  The Block, sort of a livestream. He spoke to you   for 30 minutes and then he spoke to Jeremy Allaire  for 30 minutes, and I'll have also spoken with   Jeremy by the time that this episode airs and that  conversation will be available on our overtime   feed in time for this broadcast. So, anyone who is  interested in hearing my conversation with Jeremy,  

you can do that by becoming a premium subscriber  at patreon.com/hiddenforces or just scroll down   to the bottom of the summary page to this  podcast and click on the Patreon link.   So, before we get into the details of the STABLE  Act, Rohan, and your role and intentions around   the bill, I'd love for you to tell me and our  audience who you are, because I think in recent   days with the release of the STABLE Act, there's  been a lot of speculation about your position,   your intentions as someone who's played an  important role in the drafting of this bill,   et cetera, et cetera. So, I'd love to start  off with you educating me and my audience on   who you are and how you got into this field. Yeah, sure. I'm assistant professor of law at the   University of Willamette in Salem, Oregon. Before  that I was a practicing attorney representing   children and family court in New York. And before  that I was a music teacher in elementary and high  

school in the United States and in Australia. I  come from Sydney. I moved to the United States,   been here for about 10 years. And my interest  in this area sort of came from when I was young   age. My father was an early scientist and  telecommunications regulator in Australia   working on cable TV regulation, 1980s. And I was  always interested in internet-related issues,  

pursued them while I was at law school and then  got further involved with them particularly around   digital money issues because I was also  interested in monetary macro economic issues in   the aftermath of the global financial crisis. Gotten very involved in the MMT community and do   a lot of work around other issues related  to financial system design, job guarantee,   macro economic stability. I have in the last  few years also been a network manager for the   FreedomBox Foundation which puts together a free  and open source privacy, respecting self-hosted   software. And also I'm involved with the  International Telecommunications Union consulting   and working with them on designing our regulatory  standards for central bank digital currency.   I don't work with banks, I don't work with big  tech companies. I don't take money from any of  

them and I'm not particularly interested in any of  their...my interest here come from a public policy   perspective and perspective of somebody who cares  very deeply about the internet and about privacy   and freedom, but also understands the history  of money and understands the ways in which   moneyed interests, including small but  growing moneyed interest in the tech sector   use the sort of veil of decentralization  and rhetoric around internet freedom to hide   activities that are really better described as  either grifting or unregulated banking activity.   So, this bill is part of a suite of bills  that I've had the privilege of working with   Congresswoman Tlaib's office, began with  the Automatic Boost to Communities Act   in March of this year that was designed to provide  emergency cash relief to every individual.  

I did also include a provision to direct the  treasury to develop anonymous barrier instrument,   digital cash that could be held in a self-hosted  open hardware, open software wallet and would   be overseen by an independent board to make sure  that it was replicating the privacy and autonomy   features of cash and didn't have back doors and  surveillance. And that motivation was coming from   a desire to ensure that emergency cash relief in  a pandemic and other times can be delivered to   everybody who deserves it, not just those  who are part of the official banking system.   And from there, we also worked on another bill  called The Public Banking Act which was about   making it easier for state and local governments  and other public entities to charter new banks and   to create regulation specifically to accommodate  and support public banks that serve public purpose   in opposition to the large banking industry. So the first bill you mentioned was the ABC Act,   correct? Yes.  

Okay. So, that'll also get us into a conversation  about digital fiat currencies. Before we do that,   though, you mentioned the 2008 crisis and you got  more interested in MMT after that. First of all,   what was your understanding of money and banking?  How did you understand the financial system at   the time of the crisis? Number one. Number  two, how did you get introduced to MMT and   then for those who either have no idea what MMT  is or who have an idea of it but don't actually   have an idea of what it is, what is MMT? Yeah, so I got interested in the global financial   crisis because I came of age at a time when the  entire economy was collapsing. I had studied   political economy at the University of Sydney,  which was relatively kind of heterodoxy question a   lot of the standard Econ 101 narratives. But even  then, I had also been around bankers and other   people who studied Econ sort of at more orthodox  institutions and the way that those kinds of ideas   permeated public discourse and public policymaking  was sort of the default assumption that most   people have and the global financial crisis, I  think, shook a lot of that. And at that point,  

a lot of people were looking for answers  in all sorts of different places.   And I didn't have any preconceived loyalties to  MMT, I just simply followed a lot of the debates   and got more involved in those conversations. And  over time it became clear to me that they were the   sort of most correct paradigm out there. And they  understood both the sort of technical nuances of  

how the system actually worked and also could see  behind the surface and see the kind of underlying   power and institutional dynamics that shape  the sort of surface level formalities. So,   for people that don't know, MMT stands for  modern money theory or modern monetary theory   and it's a sort of heterodox school of thought  that emerged out of earlier post-Keynesian   and Marxian and other theories and basically  starts by taking money seriously. It says that   you can't reduce a monetary economy to a barter  economy, you can't reduce money to barter.   The historical narrative that you often read in  Econ 101 textbooks that situates the origins of   money in a sort of technological improvement upon  barter and upon commodities is empirically wrong.   There's no historical evidence for that. And  in fact, the historical evidence suggests that  

the origins of money line, public governance and  social institutions that take qualitative forms   of debts and turn them into something that  can be precisely quantified and enforced by   law. So, the idea of kind of, "I owe you  one," becomes, "I owe you exactly two of this   and three of this. And if you don't give me that  way, we're going to war." And you can see that   as early as the Old Testament, but it is frankly  far more consistent with the earliest origins of   the technology of writing and the  technology of record keeping as well as   even the technology of numbers itself,  which in part sort of at least early...   In other words, the idea  of money is a liability.   Yeah, money is not just a liability, but money is  a form of quantified liabilities that can be made   commensurate with each other. I mean, the thing  about saying, "I owe you one," that's between   you and me. I can't take a favor that you did me  last week that's tied up in the fact that you're  

married to a family member of mine and you saved  me from a burning building one time and separate   that favor from our social relationship. But if I  owe you exactly $6 and that's because if you don't   pay me $6 because you accidentally killed my prize  cow, then we're going to have a blood feud, that   law is being enforced by the entire community.  If you owe me $6 and I owe someone else $6,   then I can say, "Well, you just pay that person."  And so the act of turning qualitative debts that  

are deeply embedded in particular social  relationships and to quantify debts that   can be alienated and transferred is the sort of  basis on which money and credit comes from.   And then when you look at actual money that  has existed in what we call modern economies,   that's why the term is modern monetary theory,  because there've been other forms of money going   back 50,000 years that have very limited purposes  in certain contexts like in ceremonies or in sort   of particular religious context. But if you look  at the kinds of monies that actually govern large   societies where people have to interact with each  other beyond face-to-face relationships, they tend   to be publicly intermediated and they tend to  be backed by a legal entity that in addition to   enforcing liabilities, and by that  we mean not just taxes but also   contract liabilities and property liabilities and  things. So, in addition to enforcing liabilities  

is also setting the rules of the game. You often  hear sort of from free market and people that the   state should sort of stay out of money, but you  can't stay out of money if you're also enforcing   the rules of property and contract that actually  keep markets functioning. We can't stare-   I think what they mean when they say that  is they should stay out of the role of   managing the value of money directly through  monetary expansion or contraction.   Right. And my point is that, first of  all, whatever instrument you choose to  

accept in settlement of legal liabilities is going  to be a public money, no matter what. So, you're   already making a value judgment and you choose,  but also the act of actually creating contracts   and validating contracts, which the court does.  The court says, "This is a contract we're going   to recognize and this one doesn't." Or the act  of creating something like a tort liability   or even enforcing a property right is something  that creates the monetary value in society. If  

you want to change how valuable Disney's holdings  are, or you change how many years a copyright can   be held for, right? That actually changes the  value of different assets in the economy.   But are you suggesting, and we'll get into this  actually in the overtime because I do want to keep   the focus of the first part of this conversation  moving towards a conversation about the STABLE   Act and there's overall more progressive  regulatory push, but are you suggesting that   money cannot exist outside of a... In other words,  yes, I acknowledge and agree that fiat money   drives its value fundamentally from the state's  acceptance of it as a means by which to pay   state liabilities i.e. taxes. In  that sense, I mean that word-   And private law. Right, but that independent  

market-generated currencies cannot also exist.  side-by-side in that system? Even though-   No, no, no. So, there's two things. One is the  word market there, that market is constructed   by public law. Sure.  

The actors themselves have legal status, the  contracts themselves get legally enforced,   the property rights get legally enforced  and the accounting rules get legally   enforced. The limited liability of the  corporation gets legally enforced. So,   this idea that there's a sort of market out there  that is sort of sending money in is not true. The   state creates the conditions under which markets  operate. And so anything that even comes to the  

market is itself a reflection of the public  law foundations upon which that market depends.   But to your broader point, yes, of course it  could be multiple forms of money in an economy.   One of the earliest sort of forebearers of MMT  is a guy named Hyman Minsky who was actually   one of the early theorists of shadow  banking before people heard that term.  

And he famously said, "Anyone can create  money. The challenge is to get it accepted."   And what MMT is talking about is the fact that  historically speaking, it is the public money that   becomes the most valuable and most important money  in an economy. And there's a reason why even other   private liabilities tend to be denominated  in the public's unit of account, right? If   you look at even the crypto market today, yes,  there is Bitcoin. Yes, there is a Terrarium, but  

what are the instruments that are actually ending  up sort of sinking to the bottom right now or   rising to the top, whichever metaphor you want to  use of those systems? It's stablecoins denominated   in US dollars. And so the unit of account,  which we denominate all contract liabilities in,   is the foundational point of the  whole economy. And you can create   local currencies and complimentary currencies  and private currencies, et cetera.   But historically speaking, those are not the  currencies upon which the whole economy runs,   right? They're peripheral. They stay at the  margins, they stay within certain communities.  

They stay localized and particularized, the  general money. The thing that serves as the   general unit of account and means of value and  that is the most widely accepted instrument tends   to be the public money. Now, there are situations  where a state can be destabilized and collapse,   of course, right? And you can have political  failure of a state. But in that moment,   you're also talking about a political failure of  the markets that underpin private currencies.   Or you can have states that have done full  or partial dollarization in which case-   Yeah, they choose another  country's unit of account.  

Right. But that country's unit of  account is not the country's unit   of account that they have to pay taxes in. Well, they have to pay taxes locally denominated   in those dollars, right? What they're choosing  there is a unit of account, even in those   countries where they adopt another entities unit  of account that becomes the public unit of account   that all of their liabilities are also denominated  in. Their liabilities are still acceptable   in payment of taxes, right? The state is still  enforcing contracts denominated in that account.   The fact that they choose a unit of account,  people have chosen an unit of account   based in Bali Grain before. That doesn't mean that  Bali Grain created money, it means that the state  

adopted a particular unit of account. I mean, the earliest coins in Greece,   the term drachma comes from spits of  meat that religious leaders used to   dispense at large ceremonies to different classes  of actors according to their social rank. The coin   was a symbolic representation of the  redistribution of resources that came in   a feast. And that's why they used words that have  relationships to sort of iron spits that the meat   used to be carried on. But that doesn't mean that  the metal of the coin or the meat was the money,  

the money was the unit of account, which is  why when they stopped having these festivals,   they continued to use the unit of account. They  just changed the token to which it referred.   Like I said, we're going to pick up on this and  have a much broader philosophical discussion   about MMT and money and what is money and  banking in the overtime for sure. But for now,   let's actually move to my next question. Before  we get to the STABLE Acts specifically, I want to  

understand your overall philosophy and worldview  as it pertains to government and its role in the   marketplace. What is government's role and where  do you feel that it has perhaps been negligent in   fulfilling that function and how do you hope and  wish to see that role expand going forward?   Yeah, I mean, so first of all, I don't sort of sit  here and think of all the ways that I can expand   government, right? I think that the biggest- Let me rephrase that, hold on. Because that's   not how I meant it, I didn't mean like are you  going to expand government. What I meant is that,   look, my general view here is that we are heading  into a period where we're going to see a dramatic   push for new regulations. And I think we need a  regulatory overhaul of the financial system. I   think regulators have been negligent, I understand  this is generally not a popular view in the crypto   space, but I think one way or the other, whether  you agree that there's a need for regulation,   whether you agree or not the government officials  have been competent, certainly they have been   incompetence, certainly they have in some ways  promoted malfeasance in my view, they've been   complicit in a lot of the problems that we have  today. I've got huge problems with how we've  

conducted monetary policy, the role that central  banks have played, the role that government   spending has played, et cetera, et cetera. But that's neither here nor there. I do think   we're heading into this period. And so what I  see when I look at the STABLE Act, I see a lot   of these conversations happening on Twitter where  people have opinions about the wording, et cetera,   and we'll get into all of that. But I think that  in order to understand this piece of legislation,   you have to look at the broader picture.  Because I think it's just one piece of a   much larger milieu of legislation and regulation  that we are going to see in the years to come.  

And we may even see it sooner rather than later  if Democrats manage to flip both Senate Georgia   races. So, that's what I want to start with, I  want to start with understanding because you are   a key part of this legislative push in terms of  giving it its intellectual language and thinking,   and I want to understand your  perspective and your worldview.   Yeah, sure. Okay, fair enough. So, the first thing  is I think that, yeah, you won't find any sort of  

naive faith in existing government for me. The  difference, I think maybe with some people who   take that to become sort of crypto libertarians is  I don't think that private markets and certainly   not for-profit, monetary-based markets are a  viable alternative because as I said before,   I think that they are in turn constituted by  public law. So, I think, for the same reason   that I moved 5,000 miles away from my family  and friends and live in United States to work on   issues of justice because there's no point trying  to change the world from Australia when the United   States has all the kind of power in the system.  That if you want to reform how the economy works   and how economic, justice and political freedom  works, the place to do that is in public law.   And so from my view, one of the major things is  I think that in a monetary economy, the fact that   people can't find ways to earn decent money doing  decent work that helps them in their communities   or disgrace in a moral failing. So, unemployment  is prima facie evidence of the failure of public   policy, right? Unemployment is somebody not being  able to perform labor to get money. And if money  

is something that government can create, at  any point in time the government is capable   of paying people to do things as long as there  are things to be done that helps society.   I think frankly, there are things to be  done to help society and as someone that   has taught in a daycare center in K to 12  education and now in tertiary education,   my view is that the idea that there is a sort  of 5% of the population that is so incapable   of doing anything useful for society, that they  have to be kept as sort of lepers on the margins   is frankly bullshit. And so the fact that we have  unemployment is because we allow unemployment   to persist and that one of the major reforms we  need to be doing is building an economy in which   everybody has a place to contribute and everybody  can live. And there are people who... Yeah.   No, sorry to interrupt. I want to try and  segment your thoughts here because now  

we're getting into something which I think  is even more expensive than I was suggesting.   And it's an interesting conversation to  have, and we can have it now, but-   Well, I haven't moved to finance. I just  wanted to start by starting with where money   interacts with real products. Sure. Okay, okay. Because I would do   want to challenge some of your points on that  and some of them may just be values-oriented,   but let's continue. I just wanted to point  that out. We'll put a pin in that and we'll  

talk about that later, but please continue. Yeah. So, that's the first thing is that I think   if a monetary system is leaving millions and  millions of people out and millions and millions   of hours of productive labor wasted every day,  that is a gross failure. And there's an economist   named James Tobin who famously said, "It takes a  lot of Harberger triangles to fill an Okun gap."   And those are technically Econ terms, but a  Harberger triangle is the productivity loss   from an inefficient market and the Okun gap is  the output loss from a system operating below   full employment. So, his point is that you can  tinker around the margins of all these different   industries and make them "more efficient." But  if you have a system running persistently under   capacity, that is going to have a massive  impact on overall productive output.  

Yeah, no, but is capacity the issue? Is  getting the system working at full capacity   or should the objective be generating... I  mean, I wouldn't even say generating wealth,   actually I would ask the question is  operating a full capacity the objective?   Yes. I don't think that means that everybody  needs to be working 80 hours a week. In fact,   I think it's the opposite. I think that if we  were working at full capacity, then the people  

who are working 80 hours wouldn't have to. Well, that's not what I mean, but if you've got   an economy that produces an excessive amount  of paperclips but you're at 80% capacity,   should you move to 100% capacity and produce  that many more paperclips that you don't need?   Well, no. The point of operating a full capacity  is not to produce things you don't need, it's   to fulfill the things we do need. And I think the  point is that there are huge amounts of needs that   we aren't currently fulfilling. And there are a  bunch of people that would love to be doing more,   who are living left on the sidelines. I  mean, here's a big, basic example. You're   looking at equivalent analogy, but if there's  a community and one person's house is on fire   and there's sort of 5 people out of the 100 people  in the community frantically pouring buckets of   water on the house to try and stop it going out  and the other 95 are not doing anything, right?   We would say, "Hey, maybe the others can pick up a  bucket and help too. That would help everybody and  

that would sort of stop the fire from spreading  and stop the person whose house is on fire from   losing their house." Right? So if you accept that  there are problems in the world that need to be   addressed with the urgency of a house on fire,  and I think there are many, and there are a bunch   of people currently doing the equivalent-- If you're talking about that kind of labor market   flexibility. What you're describing  is a just-in-time labor market.   Well, yeah. And the way to do that is to have a  system where there's more needs being identified   at any point than there are people to do them  so that there is flexibility. There's so many  

jobs to get done. I mean, look, maybe you have a  different experience, but I've been the director   of a nonprofit for a number of years, I've worked  in other situations where I have people who work   for me. And if you're a good director, if you  have a vision for your entity, for your community,   for your organization, there's always more work  to be done and there is people available to do it.   You never sit there and go, "Oh, I've sold  everything I need to be done." If you have   a vision for how you want to improve things, you  need more people. That's the general position.   Well, true. I will make the point though  that I don't think it's for lack of needs  

that a lot of people don't find the people  they need to do the job, it's for all sorts   of other reasons. They may themselves not be  equipped to manage the enterprise correctly,   they haven't properly identified the mechanisms  by which to do it efficiently and effectively. But   what you're describing sounds a little bit more  like a Peace Corps type situation, something where   you have a standing body of individuals that can  be paid by the state to go out and solve large   community needs. That seems more scalable. Yeah, you can design it however you   want. It doesn't have to be one central identity,  it can be a number of large entities and also a   number of smaller entities. You can distribute the  capacity to create those jobs, but the one thing  

you can't distribute, or the one thing that needs  to come from one central place is the money.   Why? So maybe you understand MMT,   you start from the idea that unemployment is  a monetary phenomenon. It is the phenomenon   of an actor who has the ability to create more  money, to hire people to do stuff not doing it.   And the rest of it is a design question and  reasonable minds can disagree. But the idea   that people are unemployed because they're lazy  or because they're unproductive or because there   isn't stuff to do is frankly a non-starter to me.  They're unemployed because people who have the   money to pay them to do stuff aren't doing it. And  I'm not blaming private actors for that record. I  

don't think that the job of the private market is  to ensure full employment, let them do whatever   the hell they want. It's not their responsibility,  it's the public system's responsibility to make   sure that people aren't left behind and that  the collective capacity of the country is put   to work fulfilling public purpose. Well, theoretically you could have   a much poorer economy that's fully  employed versus an economy that's much   wealthier that has a 4% unemployment rate. Yeah, sure. And you can have an economy without   a guaranteed right to public education where more  people are literate. I don't think that's actually   on average what ends up happening, right? But we  recognize at a certain point that if we want every   child to get an education, if we can't leave  that up to the vicissitudes of the market or   arbitrary chance, the way that we have worked  out over history to do that is to actually take   responsibility every time a child is born  to make sure they can learn how to read.  

And I think the same is true for making sure  there are work opportunities available to   people. I think we got to look back... I mean, I come from a country that actually   guarantees people healthcare, shock horror, but we  think we're going to look back, and we're going to   say, "Wow, once upon a time, we didn't think that  children should learn how to read, we didn't think   that sick people should get to have healthcare  and we didn't think that anyone who could work   should be able to." And they're going to all  look back as ridiculous, moral failings and   intellectual failings of people who spent a lot of  time justifying it with ridiculous theories about   natural rates of unemployment and about whether or  not the government's even involved in the market   when it clearly and obviously is. Well, tell us how you really feel.   Yeah, and I know I'm on the record. No, no, it's just cool. I'm messing with  

you. Like I said, we are going to talk about this  in much more detail. So, let's continue where   we kind of got sidetracked, I think- Yeah. So, financial markets,   revisions for financial, right? In your overall... Exactly, yes.   Yeah. So, the next thing is once you  understand the government could create money,   the next question is where's the  appropriate role for private monies,   right? I think that there is a role. I think that  local communities, I think a system of nested   currencies to go with nested political units in  the same way we have state and city governments,   make sense. I think that private groups that want  to do try something should have the right to do  

that too. Where I think there's a line that has to  be drawn is when that starts to interfere with the   integrity of the public monetary system because  that's something on which everybody relies on.   In the same way as I don't get to pollute upstream  in a river in the name of private enterprise,   I don't think that individuals that  engage in systemically risky activity   should be able to do that. Now, the good news is that doesn't mean  

that the answer is to hand over all the power  of big banks. In fact, one of the reasons why   I worked with Rashida to leave on a public  banking bill is precisely to point out that   if you care about credit, and if you care about  a decentralized system of financial institutions,   you can do those things within a public system  where the actors are not for-profit privatizing   the gains, socializing the losses, big banking  behemoths where they all commit fraud and don't   go to jail. I think those actors are frankly,  mostly criminal and should be shut down.   But the answer is not to then hand that over to  a slightly larger group of for-profit actors all   acting without any sense of social accountability  in the name of decentralized crypto networks. The   answer is to say, "Public money, like credit, is  a public institution on public good and we need   to have serious conversations about collective  governance." And that means thinking about the   extent to which it is actually possible to  have a banking system that doesn't connect   to the public monetary authority. And I think the  hard lesson of banking history is you can't.   The other part, I would say quickly about  the financial vision here is that I care   very deeply about individual people's  privacy, which is why the very first bill   we worked on with Congresswoman Tlaib's office  was a bill to create anonymous, digital cash.  

What I think is very dangerous and what I have  said to even friends of mine who I believe are   working in the crypto space in good faith is that  private currencies will never provide the function   that public cash provides. It will always be  risky, it will always be destabilizing. And every   minute you're putting energy into what's trying  to get anonymity in transactions through private   currency doesn't mean that you're not spending  fighting the real fight, which is public money.   And if you sit there and let the Zuckerbergs  of the world or the Jamie Dimons of the world   be responsible for the official public monetary  system because you think you're too cool. You   think it's a cowboy game to go on the edges and  work in crypto land, they are going to privatize   the money that you and your grandparents have to  pay their taxes and get paid from their employer   with, and that's surveilled system is going  to destroy freedom. So, I care very deeply   about monetary privacy, which is why I don't  waste my time on dead ends and distractions.   All right. So, let's separate a few things out.  Again, I do want to get into privacy also as part  

of this larger conversation about digital fiat  currencies. Let's hone in on something you said,   you said the real fight. Be more specific about  that, what is the real fight and what is the   problem that you are focused on solving  and that you think needs to be solved?   The real fight is that both certain public actors  and not all public actors, but certain public   actors and certain private actors have value  in controlling individuals and in creating a   financial system where there's no way to turn  that isn't subject to sanction. And what we see  

throughout history is that private- I don't understand what you mean,   I didn't understand. What I mean is a combination   of totalitarian government and hyper-capitalist  markets built around financialized data. On one   hand, you have the Facebooks and the Googles and  the sort of WeChats of the world, and on the other   hand you have the Communist Party of China and  the American government, both of whom have no   problem breaking crypto when they want to, have no  problem violating people's financial privacy and   extrajudicially killing people. So to be clear, what you're describing is   the tendency for governments to work alongside  large private corporations in a public private   partnership for private gain? Private gain and public control   and the suppression of dissent, yes. Right. And the use of government regulations,  

crafting government regulations in a manner  so as to benefit a handful of oligopolies?   Yes. Which is kind of what we have today in   the financial system, wouldn't you say? Absolutely.   All right. So, we both agree that we're living  currently in a sort of financial oligopoly?  

Absolutely, yeah. Okay.   You can see this on my writing and I  think Rashida Tlaib, what a great too,   I don't want to put words in her mouth, but  the idea that she's getting up every day,   trying to build that system at all that I  am trying to get up and build that system is   frankly a misreading. If you think that may  be convenient for your caricature, not you,   but that may be convenient for someone's  caricatures and demonization, but it's not   actually what's going on. What's going on is that  we have a different theory of how to fight that.   And throughout history, it's the moments at which  the struggles for freedom and for economic justice   reach public systems when they actually come to  a head and real change gets made. So, in my view,   we are not going to have privacy in the financial  system until we have private public cash.   We are not going to be able to tinker in the  margins of crypto land and suddenly stop the   panopticon from being built. What will happen is  people will make a few bucks in their speculative  

trading, they will continue to be a rounding error  in the financial system and the actual big actors   will integrate into the large financial government  oligopoly in a surveilled way. And that's what   you're going to see with stablecoins, that's  what you're going to see with Facebook's diem,   right? And if you want to fight that fight,  what we have to do is actually protect cash,   not chucking cheese dollars, but physical cash  that is actually guaranteed and it's valued by the   public monetary authority and it's something that  you can hold in your pocket. And that fight every   time we say, "Oh, government fiat, it's bad." Or,  "We can never do that, invest in Bitcoin," is a   minute we're not fighting that fight. Right, okay. So, a few thoughts. Well,   first of all, question, how important was Libra in  motivating you to go down this road? I don't mean   your overall interest in money, but I've gotten  that sense after reading a bunch of your stuff   that Facebook's push to get into the space, raise  the stakes of this fight, this effort for you and   for others that are part of this progressive push  regulation. Is that a fair interpretation?   Yes, in the sense that it made a fight that was  always coming more urgent. I mean, the thing about  

Facebook is it's scale. It's 2 billion plus users,  right? We've seen what actors at that scale do,   with Alipay, with WeChat and whatever Facebook  does here is going to blow half of this, the   other stablecoins out of the water very quickly  and it's going to blow half of the financial   banking system out of the water very quickly if  it actually succeeds in what it's trying to do.   Right. But to be clear, it's not that if Libra didn't   come about these risks wouldn't be there, they  were already there. Tether, USDC, they're already  

there. And going back to the very first article  I wrote on this issue about mobile money back in   about 2013, it's already here with mobile money  operators in developing countries that are also   issuing their own forms of sort of "stablecoins."  Although we call them other things, right? So this   is not a unique problem to Libra, but Libra makes  the stakes clear. What Libra actually does though,   is it provides a political opening because this  is the first time that all the central bankers   and all the public officials that don't care about  the little guy in economic justice in the way that   I or Rashida Tlaib does, actually are realizing  they need to do something, right? Until now,   the presumption in the Fed, for example,  has been, "Oh, let the banks deal with   payments." Right? "It's not our problem. We  don't want to take the lead in innovation,   we'll step back and support the banks but  they're the ones who run the payment system."   And it's no surprise there's been very little  payments innovation. But you know who the big  

banks killed before they took aim at crypto?  They took aim at postal banking in the 1960s,   right? You know who they killed beforehand?  They killed the proposal for public banks   back in the 30s and elsewhere, right? It's not a  situation where the only fight is to sort of go   into these private crypto markets where frankly,  80% of people are grifters and speculators. And   then there's a bunch of true believers who are  being taken for a ride by others, right? It's   to actually fight the public monetary fight itself  and whether or not Facebook came about, that would   be what we need to do to take away the power from  the big banks and to ensure that governments don't   use the digitization of finances as an excuse to  further perfect the tools of totalitarianism.   Actually, I think that's a  really great framing. And I  

tend to view in similar terms, in what sense? I  do think that this is an important fight to wage,   and my concern in particular, with respect to  the STABLE Act and other forms of regulation is   how do you fight the good fight, so to speak,  in terms of reforming and improving upon public   money and public banking infrastructure, while at  the same time not stifling the type of innovation   that can improve upon all of these other forms of  public money and also private commercial activity   in the economy. I think that's something  I do want to get to because I think   that's one of the big concerns of  demanding or requiring bank licenses   for a lot of these young startups. But- Well, to be clear, the bill target stablecoins,   it doesn't target private currencies. And I  understand that there are a lot of people-   But those are private currencies,  stablecoins are private currencies.   No, they're instruments that are  designed to function as public money,   they're not designed to be their own  unit of account. Do you think the--

2020-12-22 03:05

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