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Cointelegraph Exclusive: Former CFTC Chair Looks to Digital Dollar Beyond COVID-19 Stimulus

Cointelegraph Exclusive: Former CFTC Chair Looks to Digital Dollar Beyond COVID-19 Stimulus

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Cointelegraph talks U.S. CBDC with the founders of the Digital Dollar Project, former CFTC Chair Giancarlo and LabCFTC leader Gorfine.

The digital dollar has been the talk of the crypto world this week. Drafts of the COVID-19 stimulus bill first included and then discarded the creation of digital dollar wallets; a digital distribution method that would enable direct aid to citizens. 

The version of the “Coronavirus Aid, Relief, and Economic Security Act” that became law on March 27 features no mention of the digital dollar. While the proposed digital dollar lives on in at least one bill sponsored by Senator Sherrod Brown (D-OH), a United States central bank digital currency (CBDC) seems like it will have to wait for now. 

The Digital Dollar Project

This week’s emergency legislation is not the first time that U.S. lawmakers have raised the prospect of a CBDC and will not be the last.

Two notable advocates for a digital dollar are J. Christopher Giancarlo and Daniel Gorfine. The pair worked together at the Commodities and Futures Trading Commission (CFTC), where Giancarlo served as Chair. Gorfine led the commission’s FinTech innovation office, LabCFTC. 

Both Giancarlo and Gorfine left the CFTC in the summer of 2019. They made headlines in October for an op-ed advocating a digital dollar and, subsequently, for their launch of the non-profit Digital Dollar Foundation in January. 

As the crypto world reacted to the prospect of the digital dollar envisioned by Congress, the Digital Dollar Project announced its inaugural advisory board. 

Cointelegraph spoke with Giancarlo and Gorfine about Congress’ recent interest in a digital dollar as well as their plans for the Digital Dollar Project.

New legislation may be hasty, but project “heartened” to have people talking

Though the project had been part of conversations with policymakers, Giancarlo said the language surrounding a digital dollar in the recently proposed legislation was not from them. “We did not have anything to do with what was in the House bill,” he said.

Giancarlo continued to explain that the digital dollar would be useful in a crisis, but its development will probably need more time than the current emergency aid demands: 

“The United States has to proceed thoughtfully, intelligently, deliberately. We advocate pilot programs as a way to explore the utilization of the digital dollar and how it can be used, including how it can be used in a crisis. But I think one needs to be very cautious about trying to launch something as big as this amidst a crisis.”

Gorfine saw the task of distributing money to U.S. citizens in need of aid as a good use case for a digital dollar, but suggested that the present crisis might be too soon for such an implementation.

“This crisis has demonstrated that some of our processes don't seem to match a 21st-century leading economy in terms of capabilities. It's not surprising that there's now focus on whether there are better, more efficient ways to go about moving funds,” explained Gorfine. “It's also important that pursuing something like this doesn't become a distraction from getting necessary funds out in a really expedient fashion.”

Both thought that the current dilemma would at least get people talking about a digital dollar. According to Giancarlo:

“It's clear that as the public sector talks about seeking to find ways to get money into people's hands efficiently, effectively, quickly, and also to get money in the hands of people who are either underbanked or unbanked, the value of a digital dollar becomes quite clear as a delivery mechanism.”

Broad ambitions for bringing the dollar into the 21st century

Even if the current stimulus doesn’t see any new forms of aid distribution, the digital dollar project plans to see its broader goals through. 

Not aiming to publish a white-paper or push any particular coding agenda, Giancarlo and Gorfine still see a broad reboot of the dollar as necessary if it is to remain vital into the 21st century. Giancarlo said:

“The dollar's preeminence as a reserve currency is based upon it being a unit of account for most of the world's things of value — commodities, currencies, benchmarks — and all of those are going through a digitization revolution. And we really believe the dollar needs to go through a digitization as well.”

Gorfine was similarly taken with the prospect of money transforming for the internet age:

“Just as today, we can send an email with information halfway around the world in a fairly frictionless and efficient way with relatively few intermediaries — the same now seems to be true with sending information about value and about specific or unique ownership over value. The idea that we've been able to move that information more efficiently from one computer effectively to another with fewer or at least different types of intermediaries seems to be a real trend that's going to impact all aspects of financial markets and services. And to that end money is not immune.”

Technological remains undetermined

The project remains uncertain as to specific technologies, with its founders still hesitant to say what sort of blockchain it would run on, or any other technical specifications. They described the project’s mission as more dedicated to providing information on potential technical trade-offs. 

Gorfine said the task at hand was to get to work:

“Kicking the tires to find out what some of the potential benefits could be, what some of the challenges will be, how you design this, and what are the tradeoffs based on those design choices.”

Regarding the appearance of the language “digital dollar” in recent bills and the uncertainty as to whether this would be a blockchain-based CBDC, Giancarlo gave a more nuanced explanation of the Digital Dollar Project’s terminology: 

“We’ve been using the phrase ‘digital dollar’ quite consistently to refer to a US central bank digital currency. While other people say, ‘well the dollar’s already digital’ — it is indeed electronic, but when we refer to digital dollars we refer to something that is tokenized, has the full faith and credit of the United States government and is minted and distributed the same way that fiat is minted and distributed through the existing financial market banking infrastructure.”

The Digital Dollar Project, as the pair laid out in current objectives, is aiming to promote comprehensive pilot programs to figure out the real-world implications of different technical options.

Relationship to potential competitors

One question that arises when talking about a U.S. Fed-backed digital currency is what would happen to the many existing digital assets pegged to the dollar, including Tether’s USDT, Circle’s USDC or Binance’s BUSD. The United States is a notoriously tricky jurisdiction for many crypto firms to operate within anyway. Would the government try to suppress use of these preexisting stablecoins if they were to compete with an official digital dollar? Or, more simply, would demand for such coins shift?

Gorfine denied that the project’s proposed digital dollar would compete with existing stablecoins: “There are big differences when you're talking about a central bank digital currency, which is a central bank liability, as opposed to tokenization of bank money, which is something you see more with stablecoin projects. They're certainly not intended to be competitive with one another.” 

Many governments have looked to CBDCs as ways of modernizing their money. The European Central Bank and the International Monetary Fund have shown interest in the prospect. Sweden and the Bahamas seem well on their way to developing, respectively, an e-krona and a sand dollar. China’s digital renminbi seems to be the biggest direct competitor or even threat to the United States.

Giancarlo and Gorfine said that they had been following the development of China’s CBDC, but declined to view it as a competitor. “The Digital Dollar Project takes no view on the development of other either competing central bank digital currencies or cryptocurrencies or stablecoins. It just proposes that it's in the U.S.'s interest to create a central bank digital currency,” said Giancarlo. He continued to elaborate on the unique approaches different governments take in their major projects:

“We have a view that if you look at development of CBDCs around the world, they’re all driven in ways that are appropriate to their national characteristics. When China does something big, whether that’s build a blue-water navy or to develop a digital Yuan, it’s driven by the Communist Party. When Europeans do something big, it’s generally driven by the public sector. When we in America do something big, whether it’s land a man on the moon or build the internet, it’s always done in a public-private partnership. We think something as big as the digital dollar should be built in a public-private partnership.”

The international user question stands

Cointelegraph has previously asked the question of whether a digital dollar — especially one issued by the Fed and administered by Fed-member banks — would be able to operate outside of the United States. The language of recent bills promoting a digital dollar didn’t seem conscious of the prospect.

Giancarlo, for one, wanted to see the digital dollar functional outside of the United States. “What we propose would be a true central bank digital currency that would be utilized in international commerce as well as domestic commerce,” he said.

Cross-border payments, including remittances from workers sending money to families in other countries, is one of the major arguments in favor of cryptocurrencies at large. According to Gorfine, the Digital Dollar Project would like to streamline that process. He said: 

“There are three large categories of potential use cases when you talk about a U.S. CBDC. You've got kind of a retail payment use case or application. You've got a wholesale market. And then you've got international payments, which includes remittances.” 

Conclusion? Time

As with much of the rest of the conversation, Gorfine and Giancarlo took the long view. Rather than tacking on a digital dollar to an ongoing emergency, they wanted to see pilot programs to test how cross-border payments, financial inclusion, and other issues facing the digital dollar would play out in controlled environments.

Those of us interested in the fate of a digital dollar will just have to wait to see whether its recent brief appearance in landmark legislation will propel longer-term initiatives favoring it forward, or whether legislators will shelve the issue until the next catastrophe.

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Economics

Energy Stocks Are Down, But Remain Top Sector Performer

High-flying energy shares have hit turbulence in recent weeks but remain, by far, the leading performer for US equity sectors so far in 2022, as of yesterday’s…

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High-flying energy shares have hit turbulence in recent weeks but remain, by far, the leading performer for US equity sectors so far in 2022, as of yesterday’s close (June 27), based on a set of ETFs. But with global growth slowing, and recession risk rising, analysts are debating if it’s time to cut and run.

The broad-based correction in stocks has weighed on energy shares lately. Energy Sector SPDR (XLE) has fallen sharply after reaching a record high on June 8. Despite the slide, XLE remains the best-performing sector by a wide margin year to date via a near-36% gain in 2022.

By contrast, the overall US stock market is still in the red via SPDR S&P 500 (SPY), which is down nearly 18% year to date. The worst-performing US sector: Consumer Discretionary Sector SPDR (XLY), which is in the hole by almost 29% this year.

The case for, and against, seeing energy’s recent weakness as a buying opportunity can be filtered through two competing narratives. The bullish view is that the Ukraine war continues to disrupt energy exports from Russia, a major source of oil and gas. As a result, pinched supply will continue to exert upward pressure on prices in a world that struggles to quickly find replacements for lost energy sources. The question is whether growing headwinds from inflation, rising interest rates and other factors will take a toll on global economic growth to the point the energy demand tumbles, driving prices down.

The market seems to be entertaining both possibilities at the moment and is still processing the odds that one or the other scenario prevails, or not. Meanwhile, energy bulls predict that the pullback in oil and gas prices is only a temporary run of weakness in an ongoing bull market for energy.

Goldman Sachs, in particular, remains bullish on energy and advises that the potential for more prices gains in crude oil and other products “is tremendously high right now,” according to Jeffrey Currie, the bank’s global head of commodities research. “The bottom line is the situation across the energy space is incredibly bullish right now. The pullback in prices we would view as a buying opportunity,” he says. “At the core of our bullish view of energy is the underinvestment thesis. And that applies more today than it did two weeks, three weeks ago, because we’ve just seen exodus of money from the space… investment continues to run from the space at a time it should be coming to the space.”

Meanwhile, a bit of historical perspective on momentum for all the sector ETFs listed above reminds that the trend direction remains bearish overall. But contrarians take note: the downside bias is close to the lowest levels since the pandemic first took a hefty bite out of market action back in March 2020 (see chart below). This may or may not be a long-term buying opportunity, but the odds for a bounce, however, temporary, look relatively strong at the moment.


Learn To Use R For Portfolio Analysis
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By James Picerno


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Economics

Is it safe to buy WTI crude oil after bouncing from horizontal support?

A lot has happened in the energy markets in 2022, especially in the oil markets. WTI crude oil price surged to $130 in the second quarter of the year,…

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A lot has happened in the energy markets in 2022, especially in the oil markets. WTI crude oil price surged to $130 in the second quarter of the year, after only in 2020 it had traded in negative territory.

Futures contracts settle daily, and back in 2020, during the COVID-19 pandemic, when demand for oil declined sharply, clearinghouses let the futures contracts settle below zero for the first time ever.

Since then, however, the market has bounced dramatically. Few traders have bet on energy prices, especially because in the last years, the rise of the ESG meant many investments fleeing the energy field.

But supply chain issues, monetary and fiscal stimulus during the pandemic, and the Russian invasion of Ukraine are major drivers in the energy space. After reaching $130/barrel, the WTI crude oil price has corrected but found strong support at the $100/barrel area.

The recent bounce in the last few days came from Macron’s comments during the G7 meeting. He said that the United Arab Emirates does not have spare capacity to produce more oil, something confirmed yesterday by the UAE authorities.

UAE is producing at maximum capacity based on its OPEC+ agreements. Therefore, the price of oil should remain bid on every dip.

A triangular pattern forms on the daily chart

The technical picture looks bullish while the price remains above horizontal support seen at the $100/barrel. Moreover, a confluence area given by both horizontal and dynamic support made it difficult for the market to extend its decline.

As such, a triangular pattern suggests more upside in the price of oil. A triangle may act as both a continuation and a reversal pattern, and traders focus on a breakout above or below the upper or the lower trendline.

Furthermore, every attempt to the downside since last March was met with more buying. Therefore, it is hard to argue with the bullish case, especially since the series or higher lows remains intact.

All in all, the WTI crude oil price remains bullish, and the triangular pattern may break either way. However, as long as the $100 level holds, the bias is to the upside.

The post Is it safe to buy WTI crude oil after bouncing from horizontal support? appeared first on Invezz.

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Economics

When bad news is good news

After the very sharp sell-off in the share market, the recent rally is indicative of a mood where bad news is good news. Specifically, the recognised slowdown…

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After the very sharp sell-off in the share market, the recent rally is indicative of a mood where bad news is good news. Specifically, the recognised slowdown in the English-speaking economies likely means the various Central Banks will not be required to increase official cash rates by the amount that most forecasters had assumed.

To reiterate, due to the tax via the increased prices for food, fuel, electricity and gas, combined with downward pressure on house prices from rising interest rates, plus the indebtedness of the Western world consumer, I am not nearly as pessimistic as most market commentators on the belated Central Bank tightening regime.  

Australia’s household debt to GDP ratio

And to summarise where we see the current environment:

  • While they maintain a 2-3 per cent inflation target – most Central Banks are late in their tightening cycle. They cannot risk cooling down economic activity too much within their levered systems without causing too much consequential pain.
  • The US S&P 500 Index has declined 23 per cent and this is discounting some fears of recession. Nevertheless, bottom-up analysts have yet to meaningfully move on the potential earnings downgrade cycle, given the severity of the slowdown, for Fiscal 2023.
  • 81 per cent of stocks listed on the NYSE are down more than 20 per cent from their 52-week highs, meaning we have experienced a broad-based sell-off. Many highly priced quality companies and smaller companies generally have been hit much harder.
  • The US Federal Reserve is likely to raise rates by 0.5 per cent at their next meeting in late-July 2022 to 2.0 per cent, and I expect another 0.25 per cent tightening thereafter.
  • Markets rely on liquidity and a change in the rhetoric on monetary policy from the US Federal Reserve is probably needed before we can be confident ‘the bottom’ is near.
  • Some commentors are looking for upcoming weakness in the hiring plans by small businesses – and that is expected to lead the unemployment rate by four months.
  • Keep a close eye on “Doctor Copper” – a key indicator of global industrial activity. After rallying from US$2.10/lb during the COVID-19 lows of March 2020 to US$5.00/lb in March 2022, the Copper price has since declined by 25 per cent to US$3.74/lb.
  • As with the Global Financial Crisis, stimulus from China will help offset some of the slowing we expect in Europe and the US and could assist with a pull-up effect for Australia.

You can read my previous article here: The size of the hangover usually corresponds with the size of the party

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