Why The War On Physical Cash Is A War On Freedom

But if it doesn't sound exactly timely with the news, now you know why. Thanks for listening. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Wisenthal and I'm Tracy all Away. Uh, Tracy, how are things? How are things holding up there in Hong Kong these days? I don't know what to say. Most people are still wearing face masks, lots of people are working from home. I guess it just feels more normal nowadays, so normal ish,

like more normal than it was, say, like a month ago. Yeah, but I can't figure out whether or not it's actually getting back to normal or this has just become the new normal. There are there are a lot of like extraordinary stories that we've been reading about things going on in China in Asia as people and government to deal with this virus. And one story that's probably not the most important story of all of it, but that was interesting,

was the story about the government literally laundering cash. Yeah, that's right. So in order to help mitigate the spread of the coronavirus, there was a moment when the Chinese government was sanitizing it's actually cash bills, and it was doing it with I think it was with uv light, but money laundering, as you say, literally literal laundering of money.

But by large, like although obviously cash exists, and cash exists in Hong Kong, etcetera, mainland China and Hong Kong are probably among the most forward economies in terms of really becoming a post cash society. Yeah, I think that's right. I think I've told you stories before of me going to Beijing and just being almost unable to purchase stuff

with cash. When you try to pay for coffee at Starbucks, for instance, with actual money, the cash register lady tends to give you this sort of look of despair and have to go to the back room and pull out a little plastic bag with with change in it because

no one else pays it that way. And in the coronavirus outbreak, there's actually an argument that the digital realization of money in China was a good thing because it meant that people could still pay for stuff through apps, money could still flow through the system, and of course people didn't have to touch all those dirty physical bills. Yeah, I mean, it feels like there's a few different angles of this. So one, as you mentioned and um uh we just discussed, bills could in theory be a vehicle

for transmitting the virus. There was also an interesting story a few weeks ago I recall about how authorities in Hubei Province, where Wuhan is the real epicenter of the virus, we're able to basically track everyone who had bought cold medicine uh in the entire province or in the entire city. And it struck me that that is one of those things you can only do if you have a very highly centralized database of essentially every transaction there is, every purchase,

and be able to tie that to some individual. Yeah, a digital database combined with an intensely powerful surveillance system of government short Yeah, So regardless, we are moving and you know, this this episode is not really going to be about the virus per se, but it is emblematic of where we're all going as a society, maybe a different speedies, which is that physical cash is on the way out, and certainly with so much commerce going digital, where there's no such thing as cash in the digital

realm for the most part, excluding sort of U independent cryptocurrencies, cash is kind of a dying thing. I think that's definitely an open question, and I think there is as you say, this move to electronic transactions, Uh, definitely, China is at the vanguard of this, and it does open up the question of what's the role of cash in

that kind of society in the future. You know, is it going to be like the Starbucks in Beijing where people have to go to a back room to sort of search for coins to give you change because no one else is using it, right, And you know, we see this push towards cash in different ways. So there's the sort of emergent phenomenon which is just hey, app payment apps are cool. I like paying for things on

Apple Pay on my phone. It's extremely convenient. There's aggressive pushes among some sort of intellectual elite to reduce the amount of cash and society. The economist Ken Rogoff wrote an entire book basically about why we should get rid of cash. He had a few arguments. One, it's like it's used in crime more than digital money. It also, uh, if we don't have cash, you can't take your money out of the bank put under your mattress. That makes

it easier to impose negative interest rates. In India a couple of years ago, in sixteen, we know there was the big demonitization campaign where they suddenly forced everyone to convert their high dollar bills. That has had mixed success at best, I believe. But whatever it is, whether it's sort of an emergent phenomenon or very intentional push by elites, there is this sort of disappearance of the significance of cash in the economy. Sure, is that what we're going

to be talking about today? It is, And I think the key question we're going to explore today is just because it's happening, is this good? And do people really want this? Do people really realize what they're losing with cash? And is there a danger in society if one day we wake up and there's no cash, and everything is just purely uh in our bank accounts. Yeah, and I

think that gets back to the surveillance question. Of course, when it comes to the coronavirus, it might be a good thing that China contract all the cold medicine purchases because people were paying for them by apps and electronically. But maybe when it comes to some other stuff, you wouldn't necessarily want the government to be able to see your entire purchase history. So big questions. That is exactly right. So, without further ado, I want to bring in our guest

for today. He's Rowan Gray, poly math thinker UH talks about all kinds of stuff money, modern monetary fury, the law, and so forth. He is a doctoral fellow at the Cornell Law School, and he's done a lot of thinking about cash and whether what we lose when society slowly gives up cash is more and more transactions go digital. So Rowan, thank you very much for joining us. Really looking forward to talking to UH. Why should we care

about the existence of cash in your view? Uh, Well, thank you for having me, um, And I think the first thing tonight is that the rumors of cash's demise might be slightly exaggerated. UM. First, I don't think it's just a matter of UM even convenience or the elites. As my friend Brett Scott has has written about at length, there's a there's a deliberate war on cash by UM certain industries who benefit from the move to digital cash,

notably various financial technology and regular financial industries. UM. There's actually a pushback starting now. Places like Philadelphia have passed

laws requiring physical cash UM. And I think if you look at the history of digital voting and the problems there UM, and and the ways that voting experts talk about the value of sort of in person physical voting, there's a good case be made that whatever happens with digital that we're still going to need physical cash as another layer, as a kind of fail safe, and should

be taking steps to protect that. UM. But I think when it comes to digital UM finance, and as you say, the world is sort of moving increasingly towards centering digital

payments as as the primary way of paying. We're in a moment now where we have to make a decision as a society whether the balance of civil liberties and privacy on one hand and surveillance, control and law enforcement on the other either maintains the sort of uneasy relationship it's had for centuries with respect to money, or whether it moves drastically in one direction away from the ability of average people to engage in any form of monetary

activity that isn't surveilled, controlled, and potentially censored on the basis of the interest of political authorities. And I think the really important thing to think about here is that this isn't a question where we should be thinking about it as taking an active step to introduced digital cash, but rather that if we don't do something, the inertia of technology will take away something that we already have.

And in that respect, the radical move is to get rid of cash and cash like services, not to allow them in the digital world that we're building. Maybe before we go any further, you could explain the relationship between money and governments as it's existed historically, because I think this is probably going to influence a lot of our discussion.

But how do you see that relationship? Yeah? Thanks so, I, as as Joe said, come from a background in modern monetary theory, but I also come from a background in the legal history of money. And scholars like Christine Disanne and Roy Krietner and others have traced that the way that money throughout history has been a tool of public governance and most importantly a creature of law, so you can have private actors involved in the making of law.

My my former law professor, Caterine A. Pistol, has a whole book out recently called The Code of Capital about the way that private lawyers used various legal techniques to old capital and make capital instruments, but that ultimately you require some sort of public authority to not only enforced law,

but be the kind of enforcer of final settlement. If you have disagreements amongst private arbitrators or private lawyers, the place that they go to resolve those things is the public courts and ultimately some sort of central court that

says this is the sort of final decision. So when we look at the way that money works, there is the charter lists sort of m M T argument that whatever kind of money the state says it will accept in payment of its debts will always have a primacy in any society with a functioning rule of law, because that's the entity that most people are going to find themselves in some sort of relationship with, or know that their friends and colleagues and and and sort of trading

partners are also going to be in some relationship with. But it's also because that entity can choose what kinds of private contracts and private property it wants to enforce. So there's always been various forms of private money issued in circulating in circulation alongside public money um and and some of them have been more or less validated by the state, notably, for example, to turn towards uh state licensed commercial banks being able to issue money being considered

one of the notable developments towards modern capitalism. But even with sort of various forms of private community currency or private credit, there's always a relationship to state validation, state enforcements, state legitimacy. And if you think about the modern economy today, there's so many ways in which public law and legal

governance structures even the most private relationships. It's impossible to think of a world in which you could sort of even go out into the middle of the Pacific Ocean and try to create some private utopia without international water law coming into into relevance or things like that. So so in my opinion. Money is always a creature of public governance. It's always an instrument of law, and public law is always the basis for the way that we

govern even private actors. Before we go any further, I'm actually curious if we just need to define what cash is, because Okay, I have a dollar bill or a twenty dollar bill in my pocket. That cash. We're gonna be talking about it more. What cash means in the digital realm? What how how do you define cash? Yeah, that's a great question. So I think if you look at the history of money, on one hand, you can look at it in terms of the kind of legal and power

dynamics at play, and that's a really important lens. Another lens to look at it is in terms of its materiality. So a lawyer at the Federal is a Bank of New York. Joseph Summer has a line that I like to use or like to borrow, which is UM. Money is what payment systems do. And if you look throughout history, there's been two major forms of money that have existed in in parallel, in sort of combination with each other.

UM one is a system of ledgers. So the the economist time at Minski would say, you can think of the whole economy as a series of balance sheets and income statements. You could imagine a sort of great, you know, god like master account in the sky, where everybody's liabilities and assets are being constantly added and weighed up and

moved around relative to each other. But the other one is a system of tokens, a system of what we would call legally bearer instruments, where there is no single ledger, even distributed ledger. There's no ledger at all. Um. It's it's simply an instrument, a physical thing, or it can be a digital thing that you that you own, and the act of being able to show that you're in possession of it is proof that it is. It is

your asset. And this will goes back, actually interestingly to the origins of writing itself, about six or eight thousand years ago. The archaeologist M. Denise schmant Besser at when

she started looking at where writing came from. What she saw was that there were these three D clay tokens, sort of little kind of shapes and abstractions of various kinds of animals that people used to use as a form of tax receipt so not even a tax credit, but proof you paid your taxes um that the tax collector would go around to the provinces and when you give them the right amount of real goods and services, they would give you a little token to prove that

you had paid, so that when the time came to sort of do you do your taxes effectively, you could present these tokens. And what happened was that eventually they started to store these tokens in forms of clay tubes for sort of safe keeping, so that the tax collector couldn't steal them or you know, skim off the top. And then over time they would start to mark the outside of these sealed clay tubes with with little markings

to show what three D tokens were inside. And eventually they said, you know what, rather than carrying around this tube with these markings, why don't we just roll the whole thing onto a flat piece of clay and put the markings there. And that was the sort of origins of what we now consider writing on a piece of paper.

But it began with a three D token that people would physically hold as an abstract representation of tax receipts, which is not only entirely consistent with the chart list MMT narrative, but also shows the relationship between even sort of balance sheet accounting based money and a physical bearer kind of abstract less abstract money. So we've defined our variables, we've talked about what money is and whatsh is. Can you maybe talk to us about the value of cash

to governments? Like I sort of get the I get why cash is important for individuals. You know, you can put stuff on your mattress, as we mentioned in the intro, and you can hide certain transactions from the government, possibly, so there are privacy issues at play there. But is

there any reason that governments should want cash? Yeah? I mean I think if you sort of maybe hopelessly idealist, you would think that any government's interests should be to preserve people's civilities um as as a sort of core feature. People often like to present um civilities and law enforcement interests as in in conflict with each other, sort of a trade off between being able to catch the bad guys and let the good guys get away with things.

But there seems to be, at least to me in my legal capacity, very little point in having law enforcement if it isn't to protect people's legal rights includes our civilities UM, but to sort of think about the government as an as an entity, as an institution with its own set of vested interests UM. I think one area, certainly is that, at least until recently, the idea of the government maintaining its own accounts was not considered the primary kind of feasible model for an account based money UM.

Usually there have been various forms of private institutions or delegated institutions who maintain parts of what we could call the kind of common universal ledger, And in that respect, the more power that those entities have over both economic information and payment system settlement, the more the state exists in a kind of UM public private partnership with those

actors and has to share power. So having direct cash that goes into individual citizens hands is a way to counterbalance the power of any private intermediaries that they might

be UM employing. Beyond that, I think that there are sort of technological or technical benefits to having physical cash UM, in the sense that it creates a different kind of infrastructural need or a different kind of infrastructural cost benefit analysis when you have to do things like inject money into an area that doesn't have established institutions, doesn't have established banks or even post offices that can function as banks, or if you're going into a war zone, or if

you need to be able to move money into a place temporarily that's not going to have established accountants and established payments intermediaries, and then want to leave that place shortly thereafter. Um. Having something that is sort of instrument out rather than institution in I think has its own unique benefits depending on the use case, and that that's thing that throughout history, for example, has been very useful

for states with potentially moving borders. So if you think about Europe and the sort of maps you see about the evolution of various European political units, and then kind

of every five years the whole map is rearranging. Requiring the same entity to be accountable in the exact same way to a public authority might be unfeasible or at least quite difficult, whereas having an instrument that can sort of do the work of validating itself in people's pockets, UH creates a very different kind of set of costs

and potential. So something I'm curious about is that you know, a lot of the people who are most interested in this topic, the idea of censorship free payments, the idea of bearer assets that people can hold onto for person aid to transfer to person B without worrying about person see overseeing it. Are people who are involved in the

non state cryptocurrency realm bitcoiners and so forth. And then a lot of people who are sort of interested in working within the existing existing system, including many M M. Tears and Keynesians and people who otherwise accept that public money is an important thing, that public institutions are good, tend to be uh more skeptical of their worldview, and so I'm curious you sort of bridge the two, and I'm what, what do you have a hard time in the circles that you deal with on the public money

front arguing convincing people that these sort of crypto perspective on money, at least from a privacy and censorship standpoint, is something that they need to internalize more seriously into

their worldview. Yeah, that's a great question. I think there's been a lot of I'm not going to say trauma, but a lot of skepticism in precisely because the people that they usually associate these kinds of ideas with are the kinds of people that you could be considered either libertarians on one hand, or money money cranks on the other. And so the minute they even hear the word digital currency of cryptocurrency, they sort of think you're one of

those people. But a lot of the people I think who do come from an m MT point of view do so because they care about the empowerment of individuals relative to the state. I mean, for example, a job guarantee is at least in my opinion, a way of reclaiming power for individuals even against the state and saying, you know, I have a right to a job. This

isn't something that the state can arbitrarily deny me. So even though you're relying on the public institution to provide the job, you're doing it in a way that's designed to transfer sort of relative power away from the center and towards the proofhery. So once you explain these ideas, I think it's often quite possible to get people on board.

It's just that it is new, and that it's hard enough for the average person to to get their head around five thousand years of monetary history and macroeconomic theory and central banking operations. To then add on sort of the entire world of technology is just it's a lot to bite off. As someone coming from a background in law and and now money and finance and now moving into technology, there's a lot of technical competencies to juggle.

But I would say that that the m m T community has been very open and warm to at least trying to incorporate these ideas as it involves and grows. Um. For example, it had my friend Brett Scott as a keynote speaker at the International m Ntique Conference two years ago in Kansas City, which I don't think would have happened if if there was a sort of antipathy towards um these concerns. I think one of the challenges is that, you know, not to get too crude, but on the

kind of two dimensional political access. A lot of the m m T focuses on economic equality, and so it's that kind of left right spectrum, but that and often to make the case in favor of economic equality involves making a case for the benefit for the benefits that can be gained from collective governance. So you're offering in a position where you're defending the state against people that

say the government can't do anything good. So to be able to hold that thought in your head simultaneously as saying, yes, the government is a necessary engine for social justice and equality, but also maybe we shouldn't be trusting it with all of our hopes, dreams, and forgetting historical moments when the state kept a list of everybody everybody knew and everybody where everybody went, and the problems that came from that,

whether that was right wing governments or left wing governments. UM. To keep that kind of left libertarian, libertarian, socialists, anarchists kind of framework in your head as well as making a case for collective government, democratic socialism, etcetera. UM, it often feels like just another priority for people, and they often might say, well, that's great, but that's not my my area. UM And I do try to kind of

bang this drum. And I think the man Courier, who's who works in a lot of kind of consumer oriented financial regulation issues is banging this drum quite a lot as well. UM. And I think that you're going to see more and more attention to this as a lot of the finance scholars start to focus their attention on digital currency. So just to press on this issue, because this is exactly, um, what I was tweeting about earlier.

But if you think about one of the use cases for cryptocurrencies that comes up a lot, it's this idea of censorship free digital money that's sort of outside the grasp of existing governments or power structures. If crypto went mainstream enough, or if crypto adoption were really widespread, would that diminish the monetary sovereignty that allows m m T

to exist theoretically or be effective. UM. I don't think so at all, actually, and I understand why that's a concern, But I think that this is one of those examples where a much richer understanding of the kind of way that law drives public money's value. Often when m m T is talk about, for example, taxes driving money, UM, And what you'll see when you read those um sort of scholar pieces, they'll say, taxes includes fees and fines and court judgments and a whole range of what might

be technically called non reciprocal hierarchically imposed obligations from the state. UM. But it but it often in people's minds comes across a sort of a quantity number, so that you need to have a quantity of taxes ten taxes to to impose a demand of ten dollars on the economy. But the way I think about it as a lawyer is that the state is simultaneously in creating and enforcing every property right and every contract right that the entire private,

sort of market based economy relies upon to operate. And that's before we get to things like limited liability corporations and banking charters and things like that, So that in reality, it's not just a matter of the sort of tax bill you get at the end of the year, where you can see a particular number that represents the sort of tax striven money value. It's this much more kind of risk liability cloud that exists in a state of

probability at every point in time. If I walk down the street, I could potentially knock somebody over accidentally if I'm not paying attention. If they break their shoulder, then they could sue me, and then under you know, principles of tort law, I could be liable to pay them damages. I could drive down the street and my car and the same thing could happen. You know, somebody could come onto my property and I could fail to have a sign up. All of these create a formal legal liability risk.

That it's a sort of fog that we're just living in all the time, And because that fog is always sort of positively valued, that we don't ever exist in a state of zero lehig liability risk. That it doesn't it doesn't reduce down to your tax bill to think about why you're going to need public money. But even more broadly than that, we've had a lot of forms of private money throughout history operating in circulation alongside public money,

and it hasn't ever provided that kind of challenge. And if you think about the way that things like tax havens or Swiss bank accounts work today, um, it's actually the richest and most powerful and largest pots of money that require state protection the most. I often like to joke that if you really wanted to kind of get rid of tax havens, one way to do it could be to just say we're not going to enforce any legal sanction against anybody that steals assets above a certain

amount of money that haven't been declared. So if you want to go with your kind of hacking skills and go after the Cayman Islands bank accounts. Go for it. It's it's open day. We will not stop enforcement. We will not try to prosecute you for theft or anything else. And I think if you started to see that kind of use of legal power, suddenly a lot of entities that like to think of their wealth as private are going to realize just how dependent upon the public legal

system they are to protect and support that. Well, I love that. I love that framework. Let's talk a little bit about what you're envisioning in terms of state digital cash. So right now, if I want to, like, if I visit Tracy in Hong Kong and we go out to dinner together, maybe I split the check and I, like, you know, use whatever app uh it's on both of

our phones and pay her. That's not cash because that the money that I have in say my Venmo account is really just a liability of Venmo, and if I transfer it to Tracy, then that's a lot her liability of Venmo. It's not a bearer asset. How what would it look like for me to have a true digital dollar something that is pegged one to one against the dollar, but that is not a liability of some bank or some fintech company, but something that I actually control and

can move around and at my will. Yeah, So if you think about I would sort of divide up digital currency infrastructure into sort of three pillars. You've got accounts, You've got credit, and then you've got cash. And with respect to cash, the critical part to me is that the two different wallets, whatever sort of hardware and software combination that is holding these instruments, can effectuate a transaction with each other according to a set of predetermined rules.

So we can call that a protocol, in the same way as you create the t c P i P protocol for the Internet, or the asset and t P protocols, so that emails know how to talk to each other. So you create some sort of wallet system that can identify each other with a handshake, so regular public encryption, things like that. And then the way that the wallet

balances work. And this is the sort of way that I think about that is different from innsferring money from one account to another is imagine it in terms of getting change for physical cash. So if I go to a bank and I'm wearing a battle club and I don't get knocked over and arrested by the security card for wearing a battle club in the bank. But imagine I walking into the bank with a battle club and I have a hundred dollar bill, and I asked the

bank teller to give me five twenties. Um, I don't need an account at that bank to do that, right now. Maybe there are laws that say I need to sort of show my idea after a certain amount of money. But at this point, at least technically, the bank is only engaging in money um exchange. Giving five twenties for one hundred is just changing the physical structure of the money.

It isn't moving the money around. Now, imagine you and I together walk into the bank, both of us wearing a batat Claver, and I have fifty dollars and you have fifty dollars. I'm not going to do that, by the way. Yeah, you know, I wouldn't recommend it, you know, And I don't give legal advice, you know, very often publicly.

But my legal advice we're not to go into Okay, keep going, keep going, But but but say, but say this was Amnesty Day and you did go in and you had a fifty dollar bill, and I had a fifture dollar bill, and we walked up together, and you know, we put a piece of paper down so they didn't even know our voice, and a piece of paper said, please turn these into five twenties. So instead of a hundred dollar bill, there's two of us with two different sized bills or the same size bills, And we go

in and we asked for them to be exchanged. Now they give us back those five twenties, but instead of we can't split them equally, so I take two and you take three. So you walk out with sixty dollars and I walk out with forty dollars. The effect of that for you and I is that we have transacted ten dollars, right, But the effect from the bank teller's point of view is the bank teller has exchanged one dollars for one hundred dollars. He doesn't know who we are,

doesn't know what that transaction was for. Theoretically, you could wait outside and immediate with the battle club. So I walk here and I get the hundred dollars, and then I walk outside and I dropped forty on the floor, sixty on the floor, and you pick it up and walk away. But the point is that from the point of view of the authority of the central entity there, the only thing it's doing is a validating the no

double spending rule. So a hundred dollars walked in, a hundred dollars walked out, and b it's changing the relative

size of different wallet balances. And that, to me is the way that you can conceive technically of a system where the protocol between us, the set of rules between us, can ensure that there is a protection against counterfeiting and that the two actors know each other, but that they don't know any more information that they need to and an actual transaction being taken place that needs to take place.

So if you think of the bank teller there as rather than a human being, but just a robot, and that robot is not even a third party, but rather a set of protocols that the two wallets need to agree exactly on before the transaction will take place, then you've got a system where the only thing the government really needs to be able to monitor is that no new instruments are being created relative to the number that are already in existence, and that's very different to approving transactions.

So the notion is that you could create this protocol that would basically get over the surveillance or the privacy concerns. Yeah, what what you would do is you would have some sort of approved hardware and it doesn't have to be centrally issued. It could be a white label kind of generic, but but based on certain conditions that every um, every wallet had to meet a combination of hardware and software.

So if you think about email right now, you and I can send information over the Internet, and depending on how we structure that information, it can be read by a web browser or it could be read by an email server. But if you send it in the wrong format, the SMTP servers can't communicate with each other because one SMTP server, one email server will not recognize the information you're sending as information to receive for an email server. Sort of like little kids with little blocks that are

shaped like stars and circles and squares. If you try to put the square through the star block, it just won't go through. So you can design the protocol in relation to the wallets in such a way as to say the only kinds of transaction that will go through is a transaction that meets these criteria, and one of these criteria can be we have to be able to do a handshake with each other using public keys. Another will be it has to show that A plus B on the wallets on one side equals C plus D

on the wallets on the other side. And and the protocol doesn't even need to know how how much those balances are, just needs to be able to weigh them in a kind of encrypted sense. And then it needs to be able to say that once the transactions done, it's final and there's no record of it except on the wallets themselves. And you can design design something like this where the wallet balance is actually kept at home. So I'm a I'm a what's called a network manager.

It's sort of like an evangelist for a nonprofit foundation called the Freedom Box Foundation that was designed founded by one of my old law professors at Columbia, Evan Mowglan, who who was one of the people that really got

me into this privacy issue. He lost a lot of members of his family in the Holocaust, and he said to me in a law school class in first year of law school, next time they come for my family, and they will they'll get every single one because they'll know exactly where we are, and they'll know exactly who we're talking to. And that hit me like a ton of bricks and scared the hell out of me, to be honest, which is why I've spent a lot of time trying to think about these privacy issues on top

of the issues of economic justice that I already cared about. UM. But he built this Freedom Box Foundation as a way to develop a bunch of free software, free and open source software that's privacy respecting that you can put on tiny little computers, little chips that are about the size of a phone charger and that you plug in at home, and they use barely any power year, like three or four dollars of power year, and they provide all of the kinds of quote unquote cloud services that people rely

on the big centralized financial technology companies for so web server, file server, social media, all those kinds of things. UM and I run one at home now. I use it for for the equivalent of drop Box. I use it for the equivalent of Slack with my nonprofit where it's called Riot and it works exactly like slack. UM. I use it for a VPN to get into my home, you know, internet when I'm out surfing the world. There's a whole range of hern key, extremely easy to use

pieces of software that it's incorporated. But you can keep this box at home, which means police can't access that without a search warrant. Um, it's got Fourth Amendment protection to the extent of Fourth Amendment protections still mean anything. And you can tunnel into that with a secure tunnel from your phone or from anything else. So it wouldn't be simply a matter of having digital cash on your phone, and then if your phone gets stolen, you've lost your

your money. You'd be keeping your money literally under the mattress. Literally um in in the most sort of you know, my grandmother doesn't trust the government kind of way. But that the under the mattress would just be a tiny little phone charger that's plugged into the wall, and your phone would be tunneling into it like a client tunnels into an email server today. Um And and that gives you some degree of freedom and control. And to be clear, I don't think that this would replace all kinds of

accounts um in the same way. Most people, perhaps outside of certain demographics, aren't walking around with ten thousand dollars of cash as their entire life savings in the in a what in their pocket. But it means that at least we have kept that layout of the payment system from disappearing forever, and from that possibility of civil liberties and privacy from disappearing forever from our vocabulary and our

political identity. So how much of the money network that you just described, the notion of a common protocol, how much of that depends on building consensus for it to actually work well and work specifically across borders Because we're talking, of course about monetary transactions, which tends to be one of the most regulated, most sensitive of topics um in the world, especially international money transfers. So how do you build consensus towards that and would it still work if

people had differ ideas of how the protocol should actually be. Yeah, I mean, I think the first thing is that this would likely not become the primary vehicle for large institutional money flows, and I think that's the right answer. So in the same way as I said before, you know, there's a difference between sort of caring about individual private transactions and caring whether super rich people get to store

all their money in Swiss bank accounts. UM. There's a difference between what I considered to be the economic privacy of individuals and the civilivities of individuals and the rights of large corporations to have bank accounts l or huge stashes of money that they essentially don't have to declare

or that art serveiled. And to the extent that those kinds of entities are already kind of public entities in the sense that corporations have to submit filings and other things as a condition of having a limited liability cha UM, I think it's entirely reasonable for those kinds of flows to be more visible and and to be regulated under sort of traditional traditional privacy laws alongside the kinds of

laws that might protect cash for individuals. UM. In that respect, I think you know what you're mostly going to see is the same kinds of back of how central accounting to manage those laves transactions as we have today, but that the push for cash can become the tip of the spear for a larger rethinking of privacy issues with related to payments that is starting to happen already as a result of the broader privacy kind of debate sparked by people like Edward Snowden, um And and the kind

of censorship debate that you're seeing around things like the payment sanctions on Iran. When it's very clear that the NSA doesn't care about any kind of crypto or other form of privacy of financial transactions, even after claiming they would never break the cryptography of of the monetary system. Um. And when it's clear that the pay whoever controls the payment system, can control access to two basic goods in countries, that you need to start having a very different kind

of conversation about how that works internationally. UM. But my blind my kind of thinking about this is that there is probably a reasonable balance to be had in terms of scale and scope of these digital wallets. UM. I wouldn't argue for that on day one, because I don't think you argue for what you want by sort of capitulating to the center of the negotiation on day one. UM. But that right now we do have limits on the size of physical bills. We don't have a billion dollar

paper bill um. And I think that's probably okay. And to the extent that there was some sort of quantitative limit on these kinds of wards, you know, probably maybe a thousand dollars two thousand dollars, you could imagine maybe less,

maybe two and fifty UM. The Central Bank of Sweden, which is probably the central bank who's considered digital currency in the context of anonymous cash that can work basically offline, off bridge between two wallets UM at the most, has been talking about having the cash layer that eat cash layer as something limited to sort of two d two hundred, three hundred dollars worth of corona um, although we'll see how truly anonymous and decentralized that model will be depending

on the technology they choose to adopt or implement. But I think you could imagine something where you know, what you're essentially talking about is closer to the act of taking a couple of hundred dollars in your pocket on the plane than it is of really altering the core dynamics of international payments flows. We hear things all the time about central banks and government talking about their own digital currencies, and it's very hard for me to wrap

around or wrap my head around what they're going for. So, for example, you hear about the PBOC doing a digital renman b, and my gut feeling is that this is not about some incredible urge for consumer privacy. I suspect that they have something else in mind. Other people might

talk about it. I suspect cynically, but maybe less cynically, like they just want to sound interesting on a panel somewhere by sounding cool and getting to use the word blockchain and their official line of business because that's probably

gonna make them sound interesting or something like that. How many how much of the conversation that you hear regarding central bank digital currencies really is the result of people thinking along the lines of what you're thinking, which is that if we don't have some sort of central bank digital currency, if we don't have a true digital cash, then something that people value could truly disappear before they

ever had to say so in its disappearance. Yeah, so, I mean, I will give a shout out to In addition to Brat, Scott had mentioned a few times to the group of Positive Money in the UK, who you know, I've had some disagreements about their theories of money before, but they've been writting some really important policy papers around the case for cash and you know, having digital cash, and I think that they're one of the few, you know, interest groups that have a large dream of influence at

a national level. Um, that are really taking the cash dimension of this quite seriously. UM, I really would love

to see a lot more involvement from privacy people. And I would, really, you know, although I'm not holding my breath, love to see a lot of the crypto libertarian crowd to focus their attention on public money rather than these sort of inferior private money is because I think a lot of them are motivated by by good concerns when it comes to civil libertarian issues, but they are sort of hamstrung and sent to the wrong direction by their

their sort of libertarian theories of money. Unfortunately. UM. But I don't think that the majority of people who are involved in this discourse are really coming from a privacy centric perspective. No, And I think that that's a self reinforcing phenomenon because most central bankers are not civil libertarians

or lawyers there. They're people who did, you know, macroeconomic modeling, statistical modeling, and graduate school and wrote a bunch of math papers and then got into this world because they're interested in thinking about how you can, you know, move one or two big levers and move the entire economy. I mean, I understand that motivation. I think there's a lot to be said for that kind of work, but it's a kind of inherently centralizing kind of public planning mentality.

My my, my advisor Robert Goot likes to say that central banking, central banking is the last refuge of central planets. Um And and you don't often see that much overlap between central planners and civil libertarians unfortunately. UM But I think the debate over sent to a bank um technical

design of this. And you can see this all the way from the Bank of International Settlements famous money Flower to the many hundreds of almost identical papers that you can read from different central banks on the future digital currency.

They usually frame it in this sort of dichonomy between token based in account based money, which you know, going well so far, but then very quickly you read it and and the part that talks about tokens is usually some sort of decent distributed ledger which is not a token based system at all. It's just an account based system where you sort of have a slightly decentralized set

of accounts. Um. So, one of the people who's made the case for central bank accounts for all the best my friend Morgan ris Um and and for the record, I agree that we definitely need central bank accounts for all. Um We were just having this conversation on Twitter the other day and he said, well, you know, you Rowan are one of the only people who actually means it when they say they want a token based system, because mostly when I read about that stuff, they're just really

talking about other forms of accounts. And I said, yeah, look, if if all you read was that stuff, I would agree that it sounds like it's a tweetl d tweedle dumb fight. You might as well just go central bank accounts for all and just ignore the rest of it. But that there is this other debate, There is this other set of issues. And the reason I'm kind of trying to sound the alarm is because we are not going to have another chance to relitigate this the next

time around. Once we build an infrastructure for the future of digital public money that is built around centralized accounts and doesn't have a space for a token based cash like instrument, it will be too late to undring that bell. We will not go back forty years from now and

go whoopsie and get to rebuild the whole thing. So this is a moment, like with the kind of building of the Internet, where we are the last generation that will remember that there was a choice to be had here and we have an obligation, in my opinion, to

do something. So to go to your question China, UM, I was visiting China and went to the PBOC and spoke to the people who had their Monetary Payments division UM only only in the end between nineteen and they they use a term there that they call managed anonymity, which means anonymity between payments operators and between you know, people on either side of the transaction, but no anonymity

to the central government. UM. And I'm always reminded of when you go on Facebook and there are privacy settings and it says, you know, choose who you want to see your your posts, but there's never a button that says, well, I would like Mark Zuckerberg not to see my posts. He gets to see everything, you know. He's like Tom from my Space. He's the first friend of the last

friend on your friends list every time. So the Central Bank of China is absolutely building a system where they are your first and your last friend and they get to see everything um, and they're going to frame that in terms of law enforcement, just like the n s A frames surveilling everybody in terms of law enforcement. And now you is the most heinous, sort of morally objectionable

cases that they can think of for shock value. So it will be terrorism, it will be money laundering for big criminal gangs, it will be child pornography and sex trafficking, and they will use those as as a justification for saying, well, this is why we need to be able to see

everything everybody does all the time. Um. And what China did do with this is how a massive industry of the mobile payment companies we chat an alley pay that we're just completely dominating, and they recognized to their credit that this was an unstable, inferior form of money and was carrying a kind of shadow banking like risk because these large mobile payment companies were building their entire payments

infrastructure on top of the regular banking system. Like if Venmo, you know, suddenly had a float the size of the entire money market mutual fund industry before two thou and eight, you go, well, wait a second, mobile money is going to be the new shadow money that could collapse if something goes wrong, and they, within the space of sort of a couple of years, required those entities to get direct accounts at the Central Bank and then to back

those accounts one to one with Central Bank reserved dollars. And I think the next step you're going to see is they're actually just going to collapse those two layers entile so that the money going through those wallets, those sort of mobile money wallets, will be directly central bank issue money. And that's the final step of what they're building. I think Rowan great. That was a truly fascinating conversation. Thank you very much for joining us. Thank you so

much for having me, Tracy. I really like that episode. I feel like Rowan brings such a range of insights, whether or it's into the specifics of how money works, how law works, the sort of civil libertarian bent that he has. It's a very different perspective than almost anything we've heard so far in some of the conversations we've had about what money is or some of our cryptocurrency discussions. Yeah,

I was about to say exactly that. It's it's such a different um position to be coming from, and he's really bridging that space between cryptocurrencies and MMT, which kind of naturally you would think wouldn't work, but there does

seem to be some overlap. The other thing I was thinking about is the distinguishing in the cash system between ledger based accounting versus that sort of token based system of piment is a really nice framework to sort of explain the difference in in privacy concerns for digital payment systems. I really like that framework. Yeah, no, that's exact, actually right. And then the question of can the state really offer a digital token version. I mean, the nice thing about

cryptocurrencies is we know them. One thing they've proven is that you can have a digital token, and that was sort of Stosi's breakthrough, which is that I can own something or I can control something that's digital that nobody else has because of course digital you think file sharing replication difficult to own. So that part has been established. Now the question is whether the state, in theory or central banks can apply that same principle, which they already

accept with physical cash, to the digital realm. And I think Roman makes a really compelling case that they should, and I love his point about like now is the moment, because if we don't build this now into the money system of the future. Forty years from now, when all the infrastructure is in place and everyone is purely on digital abs, and maybe the apps are collapsed and that we're only using central bank money, the time will have been uh, we won't be able to easily reverse engineer

a token element of the digital money system. Yeah. I kind of wonder how many of the libertarian crypto enthusiasts will heed his call to maybe, you know, work with central authorities to figure out some form of public digital money.

I don't know, it seems like it seems like that might be a big gask that You can see his argument it's a lonely battle, right because among like the people who believe in the legitimacy of public institutions, there's a lot of skepticism towards the sort of uh, you know, sort of extreme civil liberty, maybe anarchist bent about individual behavior. And among the people who care about that stuff, primarily, there is not a lot of people who believe in

uh strong public institutions. So I applaud Roman's lonely path on this, and hopefully more people take them up. The common area in that ven diagram is pretty small. It might only be Rowan. In fact, it might all right, okay, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't though. You can

follow Rowan on Twitter at Rowan Gray. Also, he has a book coming out in January one titled Digitizing the Dollar, The Battle for the Soul of Public Money in the Age of Cryptocurrency. Definitely going to be a must read, so check that out. You can follow me on Twitter at the Stalwart, and you should follow our producer on Twitter,

Laura Carlson. She's at Laura M. Carlston. Follow the Bloomberg head of podcast, Francesco Levi at Francesca Today, and check out all of our podcasts on Twitter at the handle at podcasts. Thanks for listening to