In a letter to the Chair of the Federal Reserve, Congressman Bill Foster (D-IL), Chair of the AI Task Force and Congressional Blockchain Caucus Co-Chair, along with Congressman French Hill (R-AR), Ranking Member on the AI and Fintech Task Force sent a letter this week to the Federal Reserve asking to start looking at a U.S. Dollar Digital Currency. Former Chair of the FDIC, Sheila Bair, has been talking about this issue for some time. Since she was ahead of the curve in calling the Global Financial Crisis with her concern on subprime mortgages, it makes sense that we start listening to her on her latest concern for the U.S.
At the Senate Hearing last week on September 25 called “Facilitating Faster Payments in the U.S.”, the former Chair of the FDIC, Sheila Bair, was asked by Senator Cortez Masto (D-NV) why in her testimony she recommended the Fed look into central bank digital currencies, including cryptocurrencies run on distributed ledger technology that could be used eventually by the public, Chairwoman Bair noted, “it’s still maturing technology but it’s maturing rapidly and it’s clear having a distributed ledger that all banks would have access to, that you don’t need a intermediary, you don’t need a TCH, you don’t need centralized ledger that single point of failure, the digital transfer is from the sending bank to the receiving bank.”
To understand the importance of what Bair just did, she is addressing “TCH” which is the Clearing House, a private sector non-profit that operates RTP, a real-time payments system that is supported by the 12 largest banks. As the former Chair of the FDIC during the Global Financial Crisis, she is held in very high esteem for predicting the crisis, so perhaps it was only her that could pull off so effectively how distributed ledger technology eliminates the reliance on a centralized ledgers and intermediaries such as Big Banks.
Bair went on to note how the banks could be a monopoly in the payments space without the Fed with the Clearinghouse and that there was a lack of trust in a system where everyone else has noted how they do not trust RTP, except for the large banks that operate the system.
Seeing Bair on the offensive for distributed ledger technology in her testimony reminded me of my time as a former U.S. regulator at the FDIC during the Global Financial Crisis that has shaped my entire career trajectory with regulations and as of four years ago, entering into the blockchain and cryptocurrency world. I was reminded how Bair, the Chairwoman at the time of the FDIC for whom I worked, was ranked as the second most powerful woman in the world, led only by Angela Merkel, Chancellor of Germany. I remember reading articles about how bankers would meet for breakfast at an event, happy to see each other, smiling, and making jokes…and then Chairwoman Bair would give a speech on the dangers of subprime mortgages and how bankers needed to be more responsible…nobody was laughing before lunch. I remember watching when Bair would disagree with her colleagues such as Ben Bernanke, Chair of the Federal Reserve, Treasury Secretary Hank Paulson, and Tim Geithner of the New York Fed.
In the Senate hearing last week, Bair made as strong a case for distributed ledger technology and a central bank digital currency.
“However, even if the Facebook initiative fails, it certainly won’t be the last private sector attempt to leverage DLT to dominate global payments. If the Fed does not stay ahead of this rapidly maturing technology, I fear private sector efforts to eclipse fiat monetary systems will get ahead of them, with potential disruptions to our banking system and in a worst case scenario, loss of control of our own currency.”
Sheila Bair does an excellent job advocating for central bank digital currencies including cryptocurrencies using distributed ledger technology. What was so critical in her testimony to the Senate Banking Committee is how she is ahead of the curve again, and that is so similar to how she attempted to warn other regulators of the impending issues with subprime mortgages back in 2007. Her testimony, in addition to the prestige and respect that she has earned, may make her one of the most, if not the most influential, voices for the blockchain ecosystem in Washington D.C. today. Below is attached the full testimony from the Honorable Sheila Bair.