>> NEXT, TO THE U. S. THE SENATE RECENTLY PASSED THE GENIUS ACT, A BILL ESTABLISHING REGULATORY FRAMEWORKS FOR THE STABLE COIN, A CRYPTOCURRENCY THAT WILL HOLD THE SAME VALUE AS THE U. S. DOLLAR.

FOR THE DIGITAL ASSETS INDUSTRY, THE MOVE IS A HISTORIC MILESTONE.

UC BERKELEY PROFESSOR OF ECONOMICS AND POLITICS BARRY EICHENGREEN WARNS THAT IT COULD BRING ECONOMIC CHAOS.

HE JOINS WALTER ISAACSON TO EXPLAIN WHY.

>> THANK YOU, BIANNA AND PROFESSOR BARRY EICHENGREEN.

WELCOME TO THE SHOW.

>> THANK YOU, WALTER.

>> THE SENATE JUST RECENTLY PASSED SOMETHING CALLED THE GENIUS ACT.

IT WAS A BIPARTISAN BILL PASSED OVERWHELMINGLY AND IT WOULD CREATE SOMETHING CALLED STABLE COINS WHICH ARE A CRYPTOCURRENCY OR DIGITAL CURRENCY.

COULD YOU EXPLAIN FIRST WHAT A STABLE COIN REALLY IS?

>> A STABLE COIN IS A CRYPTOCURRENCY.

IT IS A SPECIAL KIND OF CRYPTO.

THE COMPANY THAT ISSUES IT MIGHT BE A BANK, MIGHT BE A TECH COMPANY, MIGHT BE CRYPTO EXCHANGE.

MIGHT BE PEGGED ONE-TO-ONE FOR THE U. S. DOLLAR.

>> IT DOESN'T FLOAT LIKE BIT COIN DOES.

>> IT IS SUPPOSED TO HOLD ITS VALUE AND THE ISSUER BUYS AND SELLS IT WITH THE INTENTION OF KEEPING THAT VALUE STABLE.

>> COMPANIES LIKE WALMART AND OTHERS COULD ISSUE STABLE COINS IN ORDER TO HAVE FINANCIAL TRANSACTIONS THAT DON'T HAVE TO GO THROUGH CREDIT CARDS.

IS THAT RIGHT?

>> THAT IS RIGHT.

YOU COULD USE WALMART COIN BUT CONCEIVABLY WITH OTHER RETAILERS AND YOUR NEIGHBOR DOWN THE STREET, WORLD LIBERTY FINANCIAL, CRYPTO COMPANY HAS A STABLE COIN PLANNED UNDERWAY SO THERE COULD BE HUNDREDS OR EVEN THOUSANDS OF THESE IN PRINCIPLE.

>> HOW ARE THEY DIFFERENT THAN SOMETHING THAT ALREADY EXISTS?

>> IT WOULD BE EXACTLY LIKE TETHER BUT IT WOULD BE REGULATED BY OUR FEDERAL GOVERNMENT, BY THE FED, BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BY THE COMPTROLLER OF THE CURRENCY.

THEY WOULD BE GIVEN LEGITIMACY, IF YOU WILL, BY THE FEDERAL GOVERNMENT.

>> THAT WOULD MAKE IT MORE REGULATED, MORE SAFE AND FREE THINGS WE HAVE NOW.

WHY IS THAT NOT A GOOD TIME -- THING?

>> NUMBER ONE, WE DON'T KNOW IF IT IS SAFE.

THE PRINCIPLE IS THAT A COMPANY ISSUING A STABLE COIN WOULD HOLD ONE DOLLAR'S WORTH OF RESERVES IN LIQUID, RELIABLE FORM FOR EVERY DOLLAR STABLE COIN TOKEN THAT IT ISSUED BUT -- >> BY THAT HUMANE TREASURY BILLS OR SOMETHING?

>> TREASURY BILLS.

THAT IS BASICALLY WHAT MONEY MARKET FUNDS DO AS WELL.

IF YOU THINK BACK TO THE GLOBAL FINANCIAL CRISIS IN 2008, YOU WILL REMEMBER THAT IMPORTANT MONEY MARKET FUND BROKE THE BUCK.

THE DOLLAR SHARE WENT DOWN TO $0.

97 BECAUSE THE BONDS IT HELD TURNED OUT TO BE LESS THAN PROMISED.

YOU HAVE TO THINK THAT REGULATORS ARE GOING TO BE REALLY SMART AND ON THE BALL AND YOU HAVE TO THINK THAT THIS ALL HAPPENED WITH STABLE COINS.

>> THE NEW YORK TIMES OP-ED SAID IT COULD CAUSE ECONOMIC CHAOS.

EXPLAIN WHY YOU SAY THAT.

>> WE WOULD HAVE DIFFERENT DOLLAR COINS CIRCULATING SIDE- BY-SIDE, CONCEIVABLY ALL WORTH DIFFERENT NUMBERS OF DOLLARS, DIFFERENT AMOUNTS.

SOME COINS WOULD BE WORTH $0.

97.

OTHERS WOULD BE WORTH $0.

98.

>> I THOUGHT THEY WERE SUPPOSED TO BE PEGGED TO THE DOLLAR.

>> THEY ARE SUPPOSED TO BE.

WHETHER THAT WILL BE THE REALITY OR NOT IS A REAL QUESTION.

THINK BACK TO THE MONEYMAKER FUND.

YOU CIRCULATE DIFFERENT VALUES SO YOU COULD PULL OUT THE EQUIVALENT OF A PHONEBOOK AND CHECK EACH AND EVERY COIN, EACH AND EVERY ISSUE WERE.

THE VALUE OF THE BACKING BEHIND EACH AND EVERY COIN TO KNOW HOW MUCH TO VALUE IT AT.

ECONOMISTS TALK ABOUT THE SINGLE MISS OF MONEY THAT EVERY DOLLAR BILL IS WORTH EXACTLY A DOLLAR.

THAT WOULD BE AT RISK UNDER THIS STABLE COIN REGIME.

>> WOULD IT BE POSSIBLE TO CREATE A STABLE COIN THAT WAS ACTUALLY PEGGED TO THE DOLLAR?

>> IT IS POSSIBLE IN PRINCIPLE.

THE QUESTION IS, WILL IT BE TRUE IN PRACTICE?

THERE COULD BE DECADES, CENTURIES OF FINANCIAL REGULATION.

WE HAVE TO BELIEVE THAT THE REGULATORS WILL BE ON THE BALL.

THEY WILL ENSURE THAT EVERY SINGLE STABLE COIN ISSUER IS REALLY HOLDING BANK DEPOSITS OR TREASURY BILLS WORTH A DOLLAR FOR EVERY DOLLAR STABLE COIN.

THIS HAS NOT BEEN TRUE IN THE PAST.

TETHER VALUE HAS FLUCTUATED IN RESPONSE TO EVENTS IN THE PAST .

WE HAVE TO BELIEVE THAT REGULATORS WILL REALLY KNOW WHAT THEY ARE DOING.

THEY CERTAINLY HAVEN'T PREVENTED BANKS FROM FAILING IN THE PAST, EVEN THOUGH THAT WAS THEIR CHARGE.

>> THEY HAVEN'T PREVENTED BANKS OR MONEY MARKET FUNDS FROM FAILING.

WE HAVE SILICON VALLEY BANK, A LOT OF THINGS.

WHY IS THIS ANY DIFFERENT?

THIS IS A PRETTY GOOD SYSTEM BUT NOT PITCH PERFECT.

>> IN THE CASE OF BANKS, WE HAVE FEDERAL DEPOSIT INSURANCE.

THE PREMIUM FOR THAT ARE PAID BY THE BANKS.

THE BANKS PAY INTO A FUND AND THAT FUND IS THEN USED TO MAKE DEPOSITORS HOLE IN THE EVENT THAT A BANK LIKE SILICON VALLEY BANK IN 2023 FAILS.

THERE IS NOTHING LIKE THAT IN THE GENIUS ACT SO PEOPLE WHO HOLD AND USE STABLE COINS ARE GOING TO BE MORE NERVOUS ABOUT THEIR VALUE THEN BANK DEPOSITORS.

THEY ARE GOING TO RUN AT THE FIRST SIGN OF TROUBLE AND THAT CAN CAUSE ANOTHER FORM OF CHAOS AS THE RUN SPILLS OVER CONTAGIOUS LEAP FROM ONE STABLE COIN TO ANOTHER.

THERE WILL BE PRESSURE ON THE GOVERNMENT TO BAIL OUT STABLE COIN HOLDERS IF SOMETHING GOES WRONG, JUST LIKE THERE WAS PRESSURE TO BAIL OUT THE BIG UNINSURED DEPOSITORS OF SILICON VALLEY BANK.

THERE BEING NO INSURANCE FUND, THAT IS --THE COSTS ARE GOING TO FALL ON YOU AND ME, THE TAXPAYER.

>> LET'S TALK ABOUT THE THEORY OF IT IF IT COULD BE IMPLEMENTED RIGHT.

THE FINANCIAL SYSTEM THAT WE HAVE NOW IS REALLY, IT SEEMS TO ME, ARCHAIC.

IT HAS NOT BEEN DISRUPTED IN A VERY LONG TIME.

IT IS VERY HARD FOR ME TO MAKE SMALL TRANSACTIONS DIGITALLY.

ISN'T THAT NECESSARY TO FIND SOME WAY TO HAVE A DIGITAL CURRENCY?

>> THE TRANSACTION YOU DO WITH YOUR VISA OR YOUR MASTERCARD IS A DIGITAL TRANSACTION.

AFTER ALL, IT IS SETTLED DIGITALLY.

IT MAY TAKE A FEW DAYS BEFORE THE VENDOR ACTUALLY GETS HIS OR HER FUNDS.

IF YOU USE YOUR BANK ACCOUNT TO PAY YOUR ELECTRIC BILL ONCE A MONTH, THAT IS A DIGITAL TRANSACTION AS WELL.

>> THOSE ARE ONLY AVAILABLE TO PRIVILEGED PEOPLE LIKE ME AND YOU WHO HAVE CREDIT CARDS.

WHAT ABOUT MOST AMERICANS WHO DON'T HAVE CREDIT CARDS?

>> MOST AMERICANS ARE BANKED.

IF YOUR CREDIT IS BAD, YOU HAVE A DEBIT CARD, WHICH IS ALSO DIGITAL, INSTEAD OF A CREDIT CARD.

THERE MAY BE A LITTLE BIT OF ADDITIONAL CONVENIENCE HERE.

FOR MOST OF US WITH CREDIT CARDS, WE DO PAY A FEE.

THEY DO PASS THE 2% FEE ON TO US.

I WILL REMIND YOU, YOU COULD PACKAGE OF SERVICES.

YOU GET FRAUD PROTECTION, THE OPTION OF PAYING NEXT MONTH RATHER THAN NEXT MONTH.

IN THE CASE OF A STABLE COIN, YOU WILL BE ABLE TO MAKE A PAYMENT ALL BUT INSTANTANEOUSLY BUT YOU WON'T GET THESE OTHER PROTECTIONS AGAINST FRAUD.

>> SENATOR TIM SCOTT IS ONE OF THE PROPONENTS AND TALKED ABOUT THIS BEING VERY IMPORTANT FOR FINANCIAL INCLUSION.

ISN'T THERE SOME ADVANTAGE TO HAVING MORE AND MORE PEOPLE TO BE ABLE TO MAKE TRANSACTIONS LIKE THIS?

>> IN SOME COUNTRIES, I THINK THAT IS THE CASE.

WE DON'T HAVE A BIG PROBLEM OF FINANCIAL INCLUSION IN THE UNITED STATES.

THERE ARE DIFFERENT FIGURES FOR PEOPLE WHO DON'T HAVE BANK ACCOUNTS, DEBIT CARDS AND SO FORTH BUT MANY OF THE PEOPLE WHO DON'T, DON'T WANT THEM BECAUSE THEY FLY UNDER THE RADAR, ESPECIALLY IN THIS DAY AND AGE WHEN WE HAVE AGGRESSIVE IMMIGRATION ENFORCEMENT.

ONE USE CASE FOR STABLE COINS IS REMITTANCES WHERE WESTERN UNION WILL CHARGE 6%, 7% FOR SOMEONE WORKING IN THE UNITED STATES TO WIRE MONEY TO A FAMILY IN MEXICO.

A STABLE COIN CAN DO THAT QUICKLY AT LOW COST.

MORE GENERALLY, STABLE COINS ARE USED AS ON RAMPS AND OFF RAMPS FOR BUYING OTHER CRYPTO.

IF YOU WANT TO USE YOUR DOLLARS TO BUY BIT COIN, THE EASY WAY IS TO FIRST BUY TETHER AND PARK YOUR DOLLARS THERE AND THEN BUY A BIT COIN.

STABLE COINS ARE USED FOR REMITTANCES LIKE I DESCRIBED AN STABLE COINS ARE USED FOR ILLICIT TRANSACTIONS OF VARIOUS SORTS, MONEY LAUNDERING, TAX EVASION AND SO FORTH.

THERE IS ANOTHER PROBLEM WE HAVE TO WORRY ABOUT.

DO WE THINK THAT WALMART OR YOUR FAVORITE TECH COMPANY WILL BE ABLE TO EFFECTIVELY ENFORCE KNOW YOUR CUSTOMER AND ANTI- MONEY-LAUNDERING RULES?

THAT IS WHAT THE GENIUS ACT ASSUMES.

>> WALMART, LET'S SAY IT DOES SOMETHING LIKE A WALMART COIN AND IT STANDS BEHIND IT.

WHY WOULDN'T I TRUST WALMART, AS MUCH AS I MIGHT EVEN TRUST A MONEY MARKET FUND TO SAY, OKAY, I WILL PUT SOME STORE VALUE INTO WALMART COINS?

>> I THINK IT IS ENTIRELY POSSIBLE THAT THAT WILL WORK BUT IT MAY START WITH WALMART BUT IT WON'T END WITH WALMART.

AGAIN, THE GENIUS ACT FORESEES ALL KINDS OF RETAILERS LIKE WALMART, BANKS, TECH COMPANIES AND OTHERS ALL ISSUING THEIR OWN STABLE COINS.

IT IS CERTAINLY POSSIBLE THAT A BIG PLAYER IN THE END LIKE WALMART OR EVEN ONE OF THE CREDIT CARD COMPANIES WILL END UP DOMINATING THIS SPACE .

DO WE WANT OUR PAYMENT SYSTEM RUN BY WALMART?

>> WHAT WOULD HAPPEN IF THE U. S. GOVERNMENT DECIDED THAT FED SHOULD DO THIS.

WITH THE MAKE SOME SENSE?

>> IT WOULD MAKE A LOT OF SENSE.

A LOT OF COUNTRIES ARE MOVING DOWN THE ROAD, PROVIDING THEIR PUBLICS AND THEIR BAKING SYSTEMS WITH THE CENTRAL BANK ISSUED STABLE COIN, CALLED A CENTRAL POINT DIGITAL CURRENCY.

CHINA HAS DONE IT.

IT IS MOVING DOWN THAT ROAD AND MANY OTHER COUNTRIES ARE EMULATING ITS EXAMPLE.

THERE ARE OPPOSITION IN THE CONGRESS TO DO THAT IN THE UNITED STATES.

THERE ARE SUSPICION OF THE FED.

THERE IS A LONG TRADITION IN THE UNITED STATES GOING BACK TO ANDREW JACKSON AND BEFORE, DEEP AND ABIDING SUSPICION OF CONCENTRATED FINANCIAL POWER WHICH MEANS THE FED IN THE U. S. CASE , U. S. POLITICIANS DON'T WANT A CENTRAL BANK DIGITAL CURRENCY.

THEY ARE LEFT BY DEFAULT, IF YOU WILL, WITH A STABLE COIN AS A WAY TO TAKE ADVANTAGE OF NEW DIGITAL TECHNOLOGY.

I THINK CBD C, A CENTRAL BANK ISSUED STABLE COIN WOULD BE A BETTER WAY TO GO.

>> ISSUE, STABLE COINS BACKED WITH THE CENTRAL BANK, WHETHER IT IS CHINA, THAT UAE, EUROPE, OR OTHERS.

COULD THOSE BE USED IN THE UNITED STATES?

AT THE MOMENT, PEOPLE ARE USING A NUMBER OF DIFFERENT NATIONAL CURRENCIES AND THEIR CROSS- BORDER TRANSACTIONS.

THE EURO IS USED WITH INTERNATIONAL FAITH AND FOREIGN INVESTMENT.

THE GREATER CONVENIENCE OF USING A DIGITAL CHINESE MIGHT CREATE A MORE SERIOUS ARRIVAL TO THE U. S. DOLLAR.

I THINK THERE IS A DANGER OF THE STEALING A MARK ON US.

>> X, FORMALLY KNOWN AS TWITTER IS GOING TO LAUNCH ITS OWN DIGITAL CURRENCY HERE.

IT HAS BANKING LICENSES OR A BANKING TRANSFER ABILITY.

DO YOU THINK SOCIAL NETWORKS ARE BECOMING A FINANCIAL MONEY TRANSFER SYSTEM IS A GOOD IDEA?

>> I WORRY ABOUT THE WAY SOCIAL NETWORKS ARE PRIVY TO INFORMATION --OTHER INFORMATION ABOUT USERS, ABOUT YOU AND ME AND ABOUT HOW WE CAN USE THAT INFORMATION TO THEIR ADVANTAGE IN THE BANKING AND FINANCIAL SPHERE.

YES, I THINK THERE IS A HIGH LIKELIHOOD THAT X OR THE OTHER PLATFORMS WILL MOVE INTO THE STABLE COIN SPHERE.

>> IF THAT IS THE CASE, IS IT BETTER TO REGULATE IT?

WHETHER THE GENIUS ACT IS EXACTLY RIGHT, IT HAS TO BE BACKED DOLLAR FOR DOLLAR BY A LIQUID CURRENCY.

>> I DON'T THINK THAT OUR GOVERNMENT CAN IGNORE STABLE COINS ENTIRELY, AS THEY HAVE PRETTY MUCH DONE UP UNTIL NOW BUT I WILL SAY THAT THE BETTER MODEL IS A SIMPLE BANK DIGITAL CURRENCY END IF THE BANK -- THAT IS WHAT THE PUBLIC WOULD GRAVITATE TOWARD.

DO WE WANT TO X TO KNOW EVERY DETAIL ABOUT OUR EVERY TRANSACTION?

WHICH, THEY WOULD, IF WE USE THEIR STABLE COIN.

OR, WOULD WE PREFER THE FED TO BE THE ENTITY THAT ISSUES THE DIGITAL MONEY THAT WE USE?

FOR MOST AMERICANS, I THINK THE ANSWER WOULD BE THE FED.

>> THE SENATE PASSED THE BILL TO CREATE A REGULATORY FRAMEWORK FOR STABLE COINS.

NOW, GOES TO THE HOUSE OF REPRESENTATIVES.

WHAT WOULD GO TO CHANGE IT THAT WOULD MAKE YOU FEEL MORE COMFORTABLE WITH THIS CONCEPT?

>> I DON'T THINK THERE IS A LOT THAT WOULD MAKE ME FEEL MORE COMFORTABLE.

ANYTHING THEY CAN DO TO TIGHTEN REGULATORY OVERSIGHT.

FOR EXAMPLE, THERE IS A PROVISION IN THE SENATE VERSION THAT PERMITS, QUOTE, SMALL STABLE COINS TO BE LICENSED AND REGULATED BY STATE GOVERNMENTS.

I WORRY ABOUT COMPETITION BETWEEN THE STATES AND THE CAPACITY OF ALL 50 STATES TO ABLY REGULATE STABLE COINS, EVEN SMALL ONES BELOW $10 BILLION OF ISSUANCE.

THAT IS AN EXAMPLE OF SOMETHING I WOULD ELIMINATE IN STRENGTH AND REGULATION.

MORE GENERALLY, I WOULD FEEL BETTER WERE THERE MORE SUPPORT FOR THE FEDERAL RESERVE ISSUED ALTERNATIVE, WHICH I THINK WOULD BECOME THE DOMINANT STABLE COIN.

>> PROFESSOR BARRY EICHENGREEN, THANK YOU SO MUCH FOR JOINING US.

APPRECIATE IT.

>> THANK YOU, WALTER.