Episode 167 – The E-Cash Act with Rohan Grey

“In one sense, it’s a state initiative, but in the other sense it’s actually preserving rights of individuals against the state.”

Rohan Grey is back with us for the seventh time. In this episode, he talks to Steve about the ECASH Act, which he helped craft as a step toward creating public digital dollars with the privacy and anonymity of physical cash.

To explain the features this future currency requires, and the problems to be solved, Rohan takes us on a tour of the history of money, early record-keeping devices for the tax collector, and the development of banking. Tally sticks, which were broken in half (to be matched later) were primitive encryption keys. Further noteworthy events include the invention of the telegraph in the mid-1800s, the codebreaking and Navajo language speakers during World War II, and the cypherpunks of the 1980s.

Rohan is an evocative storyteller, piquing our imagination with vivid references. By the end of the episode, he has mentioned five movies, plus Scrooge McDuck, Seinfeld, Henry VIII and Ann Boleyn. Oh, and Emma Goldman.

Steve and Rohan sort through objections to the privacy we should demand of public digital currency. Arguments come from right, left, and libertarian factions, each believing their bogeymen will be free to do nefarious things under cover of anonymity. They put their faith in private entities.

Digital public money would address the needs of populations who cannot or will not use banks. It can be accessed without an internet connection, and it is easy to see the benefits assured privacy provides to political dissidents, sex workers… and everyone else living under the gaze of surveillance capitalism. We have learned about the war on cash from our friend Bret Scott. It is time to fight back.

Rohan Grey is an Assistant Professor of Law at Willamette University in Salem, Oregon, and the founder and president of the Modern Money Network.

@rohangrey on Twitter

Macro N Cheese – Episode 167
The E-Cash Act with Rohan Grey
April 9, 2022

[00:00:03.930] – Rohan Grey [intro/music]

What the E-cash Act is trying to do is to occupy that square in the four-square box of public money versus private money on one hand and pro-privacy and anti- privacy on the other. To occupy that box of being pro public, pro privacy.

[00:00:24.800] – Rohan Grey [intro/music]

The Mint should be the one to issue a stored value card because it’s the next evolution in the equivalent of coinage in the digital world. And that the Mint, unlike the Fed and unlike other actors, has always had a respect for privacy because you issue the coins, they don’t even have a barcode on them and they don’t give a shit what you do with them once they’re out in circulation.

[00:01:42.110] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.040] – Steve Grumbine

All right, folks, it’s Steve with Macro N Cheese. And today’s guest is Rohan Grey. And you know who Rohan is, but I’m going to tell you a little bit more about him anyway. Rohan Grey is a professor of law at Willamette University. He is also the President of the Modern Money Network. And he was also the advisor on a current bill called the E-Cash Act. I’m very excited.

And that’s what we’re going to talk about today. A little bit of that and a little bit of history of physical money and going back to the beginning of electronic systems and communications and how we interact with one another. And I believe that Rohan, you’ve got a great historical background on just about everything. I don’t think there’s ever been a time where we’ve come to a subject that I didn’t think of you as very well versed. So let’s just start with this. First off, how the hell are you?

[00:02:32.420] – Rohan Grey

Yeah, not too bad. Nice to be back. Thanks for having me.

[00:02:36.870] – Grumbine

It’s been a few.

[00:02:38.220] – Grey

Yeah.

[00:02:39.050] – Grumbine

It’s always the honor on this side of the mic. Trust me. You are the rock star here. This E-cash bill I read, there was a great article in Wired magazine. It was fantastic to see your name in there, but it really kind of brought about some questions and some ideas. And I guess we want to talk about that act. But before we jump in, I guess it would be a good idea to start with talking a little bit about the history of money and its physical forms up to present.

[00:03:09.430] – Grey

Yeah. Thanks. And first of all, obviously, a lot of listeners here probably know me from MMT world. And I think the kind of emphasis on money as a legal construct, as a legal institution, as a social convention is incredibly important, especially given that for most people money is equated with gold or equated with some sort of hard asset.

And so just go into the realm of what Warren Mosler calls Soft Currency Economics. I think it’s incredibly important to get the right conceptual framework, but I think at the same time, it’s also important to note that history has a differentiation across time of technological dimensions. That is to say, you can say on one hand that money is a creature of law and a creature of public authority.

And you can say, well, there’s a difference between Babylonian temple palaces and Egyptian Pharaohs and Greek city states and absolute monarchies of medieval period and modern secular republican democracies and the Westphalian systems of government. But you can also say there’s a difference between money that was issued on tally sticks and coins and paper currency and electronic devices today.

And that doesn’t lead you back to the cul-de-sac of Austrian economics and gold bug-ism and object impermanence, as long as you can understand the underlying legal relationship and the fact that law is not only the law of money, but also the law of technology, the way in which we make money in a literal sense, as well as making money in a legal or conceptual sense.

And if you start back to where the historical record opens up and people like Michael Hudson and David Graeber and John Henry and Alla Semenova and others have looked at this in detail, going back five, six, seven thousand years, the earliest forms of money or proto-money were actually physical tokens that were representations of goods and services, mostly goods paid in taxes.

And these tokens were little clay circles, triangles. Sometimes they took the shape of an animal or something and they were basically serving as a tax receipt. So if you imagine a relatively large geographic region, often under some sort of centralized authority or operating with a kind of coordinated temple state as the central economic mechanism, even if there wasn’t a single warlord or single sovereign dictator or something, that there was a two step process where the tax collector would come around and collect the physical taxes.

And later on you would have to demonstrate that you had, in fact paid your taxes or in good standing. And what would often happen is you would pay your taxes with the physical goods you would hand over and you would get a little token as proof. And when the time came to prove that you’d pay your taxes, you would show the token and it would be almost like a receipt.

And over time, these physical tokens actually got stored in little clay tubes called bullae, which were an attempt to, amongst other things, avoid grift by the tax collectors. And this is still a live problem today in a lot of countries where they have physical tax collection. And by the time the tax collector gets back to central command, his purse is a lot lighter than it was when he set out.

And so they would put these tokens inside a clay tube and they would put markings on the outside of the tube about what was inside. So this is a form of financial integrity and security in a sense, using hardware. And when they got to the other side, they’d break the tube and they would take the tokens out and they’d say, oh, look it’s the same number of tokens as it said on the outside.

And then after a period of time, they realized, in fact, you don’t actually need anything on the inside. What you need is the information written down on the tube and signed or having appropriate validation of the other party. And then they said, well, why are we doing this on a tube? And we could roll it flat. And that emerges into the clay tablets, which are the earliest known records of writing.

And so the archeologists of this period, their view is that a lot of the earliest proto forms of the written word were essentially physical tokens, rendered 2D as a form of accounting to manage tax receipts. And this becomes an accounting system, eventually. You don’t need the tokens for a while, or you use the tokens as evidence of what you then record on the accounting system.

But later on, you start to have things like coins and then paper money, and then coins in Greece, paper money in China, and then things like tally sticks in Europe. Tally stick being one of my favorite analog versions of a modern form of cryptography, where they would take a piece of wood, they put notches on the piece of wood that would refer to hundreds, tens, whatever, and then maybe some sort of unit of account, and then they would break the piece of wood into two.

And the point of the break would be a unique snap. And if you put the two pieces together again, they would match up perfectly, kind of like a public key. Encryption works today where you have a public and private key and you use the pairing of the public and private key as a way of validating who has a claim to whatever is being secured by that encryption.

If you think of a library deposit box that’s on the outside of the building of the library, and you go there after hours and you put your book in the box and then the librarian comes in the next morning and opens it from the back. Anyone in the public can put it in the front, but only the librarian can open at the back.

That’s sort of how public key private key works is a public facing address, but only the person with the private key can access it from the back. Anyway, all of these different kinds of tokens exist in parallel to account based money, but they have different functions, they have different politics, they have different dynamics, they have different legal implications.

And one of my favorite legal historians, a guy named Benjamin Geva, who does a lot of work on the history of payment instruments, has a great article about the emergence of the modern bank deposit, the modern transferable bank deposits, looking at how it is that bank money came to be what it is. And the origins were in goldsmiths who would transfer gold coins and they would give you a claim on those gold coins.

But over time, they became two separate legal tracks. One track was if you wanted specific gold coins, say you had a collector’s item or your grandmother gave you a coin of particular significance or something like that, you would put it in a sealed bag and their obligation would be to look after or transport that sealed bag with everything inside of it, and you had a direct claim on the stuff inside.

The other option would be you would give them money and they would put it in a big chest with all the other money that other people have given. And you would just have a general claim on all the coins, yours gets mixed in. Those old images of Scrooge McDuck on Disney Channel. Which one is your coin? Who knows? It’s lost in the sea.

And so what you would have in those situations was not a property claim against certain items. You would have a general debt claim against the actor for a certain share of their overall dollars. And those two legal concepts split off. One became the law of bank money, what we would consider a chosen action or a contractual debt, where you have a debt against the bank for the amount.

And this is why we say a bank deposit is a promise to pay, it’s an IOU. And then on the other side, you would have what became the law of debt and even eventually bailment, which was much more equivalent today to a safety deposit box. You could put your passport, your jewelry and money from different countries in there and the bank would look after it, but it’s not theirs.

They’re not giving you a claim for an equivalent passport. It’s the passport in the box that’s yours. And the same is true for all the money. You see those images of Jason Bourne or something and then go to a safety deposit box, and there’s different currency from different countries and things, right? So the example for bailment that I like is the Seinfeld episode where he puts his coat at the dry cleaners, and then he sees his dry cleaner out on the street wearing the coat, and he’s like, that’s my coat.

He’s incredibly offended and he tries to accuse him, he denies it and all this stuff. The whole point is that they have an obligation to look after your property. They don’t own it and have an obligation to pay you an equivalent value. That’s the big difference. And so coins and notes have always been treated in that way versus a bank debt. And there’s a couple of other things that are important there.

One is that the word currency, as the legal historian David Fox has written about a lot in a great article called “Bona Fide Legal Purchase and the Currency of Money”, the word currency there is the same root as the word current, like contemporary. And the idea is that money that is issued in that form in an object does not have history. It does not have memory in the way that an account does.

If you have an account ledger and you make transfers, then there’s a record of those transfers on that ledger. It used to belong to this person. Now it belongs to this person, and you can trace that. That’s why it’s easy to trace fraud and theft from your bank account or your credit card. And that’s why, for example, property titles have a continuous chain of possession Going back to whenever that private property regime was established.

The currency is different. Currency has no memory by design. It’s unique in this respect relative to other forms of property. And what that means is, if I steal money from a Bank and then I go down the street and take off my balaclava, and I put on a different jumper and all that kind of stuff, and I go into a convenience store, and I buy a candy bar, and the shop owner doesn’t know, they’re not a fence.

They’re not involved in the bank robbery. And then I run out and go down the road, and then the police go in there, and they follow me in, and they say, well, what they do? Oh they paid $3 for this candy bar. And they say, well, you’re going to have to hand over that $3, right? That’s not how it works in that moment it’s your currency.

The ownership transfers with the current owner, the current possessor of the money, as long as they received it in good faith and weren’t actively part of the initial illegal transfer. And that concept has been expanded out from public currency to private instruments like bank notes and checks, where they are what’s called a bearer instrument, as opposed to a ledger-based obligation.

A bearer instrument means you pay to whoever is holding it. And treasury securities used to be bearer instruments. If you’ve ever seen the movie Panic Room, physical certificates in a safe, treasury bonds, they were made illegal in the mid 20th century. And stocks used to be the same way. People could walk into a shareholder’s meeting. And simply by holding the stock certificate, they would have a vote, and maybe they’d stolen it from someone right outside, but that was still legal.

So we’ve had this distinction physically between the two kinds of technologies for literally thousands of years, and they’ve had quite different legal treatments and political implications. One of the benefits of physical currency is you can move it around the world. Coins, there’s not even a barcode on them like there is with paper currency.

You can transfer it everywhere you want it because coins had collateral, the metal itself. Even if the Roman Emperor or the King or something dies, you still got the piece of metal on the other side to restamp with someone else’s head. The King is dead. Long live the King. I’m always reminded of that great line from Catch 22 where they’re talking Italian occupation in World War II.

And there’s an old Italian man that says it all these greatest strength is that we lose every war, every time there’s a new invader, when the Americans come I’m wearing an American flag, when the Nazis come I’m wearing a Nazi flag, and we’ll be here long after we’re all gone, we don’t care. And that idea of, well, the gold is going to be there through different regimes.

It’s not that the gold is money itself, but the gold is a basis for hedging against any particular regime collapse. You can’t do that with an account money necessarily, especially in account money at a central bank, because you could just invalidate that entire institution with a new regime, and then you’re left holding what claim against the dead institution. So they’ve always been different, is my point.

And when we move into the digital currency debate as we transition to the digital world, I’m happy to talk about the history of digital tech, if that’s helpful, too. But at this point, up until this act (and some other attempts earlier, but this is, I think, probably the biggest push so far) the conversation has been almost exclusively on the account-based side.

Whether you’re talking about central bank digital currency or the treasury direct system that people like my advisor Bob Hockett proposed, or postal banking or public banking or on the other side of the ideological spectrum, crypto and distributed ledger, blockchain based technologies, they all involve some sort of central ledger, some sort of central record of all of the transactions.

And they may have more or less pseudonymity, they may have more or less information being stored in that blockchain. There are certain crypto technologies like Zcash and Monero, that try to shield the actual information that goes on that ledger. So you’re not putting the transaction itself. You’re just putting a big thumbs up saying a transaction happened and it was good, and that’s what goes on the ledger.

But they all require settlement against that ledger. And even the big central bank digital currency initiative that the Boston Fed has been doing with the MIT Digital Currency Lab has been really exclusively around this ledger technology. And one of the downsides of that is that you’re still in a system of asking permission to pay.

Whether you’re asking permission to the public authorities or you’re asking permission to the blockchain network, you still have to have your transaction validated by somebody else. Compared to a digital cash instrument where all you need to do is transfer the ownership or the possession from one person to another.

So this is an attempt to reestablish token based hardware based bearer instrument currency as opposed to account money as an important, distinct phenomenon that cannot be reduced to this ledger debate or account based models and say that we’ve had both. And as we move into a digitally native world, we should keep both functionalities.

[00:17:13.870] – Grumbine

I go back to your panic room discussion and it reminds me, my grandmother was a board game fanatic and everybody always talks about Monopoly. But one of the games our family played was this game called The Stock Market Game. And the Stock Market Game had stocks. You literally had these notes. They were exactly what you were talking about.

And as you were saying it, I was having a flashback to 1976 or 77 sitting there at the table with my whole family learning the stock market game. It’s just kind of weird how the advent of the internet has radically changed our view of what these physical representations are. And so you did mention that you would talk about the digital side of it and I’d love to hear about that. I think it’s very important to see the parallels.

[00:18:05.350] – Grey

Yeah, sure. I think the digital conversation really has to start back with the Telegraph. It’s the first international physical communications infrastructure. Suddenly different markets that might have had six months, three months, two week delay of getting information from one to the other was suddenly connected in almost instantaneous fashion.

The cross Atlantic financial centers of New York and London started to fuse in a way that they hadn’t up until then. Prices across different regions started to have to bump up against each other. And Interestingly enough, if you look at the role of banking institutions, one of their major claims, one of the reasons, I think at least, that private banks ended up occupying such a dominant position in the financial architecture, apart from just private interest in capitalism, all that kind of stuff, is that compared to the governance capacity of your average monarch or emerging nation-state or whatever else at that period of time, from the 1300s or 1400s through to the 1800s, a network of banks that was international.

The bankers identified themselves across national lines like the Catholic Church did, and often settled with each other as a merchant class or as a financier class. They represented an incredibly powerful information processing. And to give the American example, you’ve got this early 1800s. You’ve got thousands of state chartered public banks across the country.

And what they’re doing is they are processing local transactions on their accounts every day. At the end of the day, they’re settling stuff up. They’re tallying they’re making sure the numbers add up and then they’re cross referencing with each other, they’re settling with each other. If notes from one bank gets submitted at a different bank, they make sure that eventually they make their way back.

They might go through a big central hub like New York or New Orleans or something. Certainly the geographic dynamics of that banking network play a big role in the westward expansion and the financing of it. And so you have it. In one sense, you’ve got banks as privately delegated public monetary actors. And my colleague Nathan has done a great job looking at tax receivability of those banknotes delegated public good.

But also you’ve got them as information hubs. And if you are looking at a relatively young federal government at this point with very limited institutional capacity, it’s got the post office, which is arguably the other big information network at the time, and you’ve got the military, you got customs dealing with the ports, because at this point, what you’re really trying to do is control entry to this big continent.

You’ve kicked out the French, you’ve kicked out the British, kicked out the Spanish. You don’t want them to come back. New York is a customs Port masquerading as a city, that kind of stuff. And then you have the rise of the telegraph and suddenly this is an incredibly powerful new information network. And what’s one of the things they’re going to do is try to take a chunk out of the finance business.

So almost immediately after Western Union and these other telegraph companies come into being, you start to see wire transfers. And at the initial instance, they’re doing transfers on behalf of financial institutions. They’re the coupling string that the two bankers put up to their ears across large distances. But by the early 20th century, these telegraph entities and others are actually starting to issue their own financial products.

So one of the earliest precursors to the credit card was a metal plate issued by Western Union. By the time you get to the later 20th century, you’ve got Visa and Mastercard and Amex, Diners Club credit cards, which start off as a way for commercial businesses to basically link up their respective business credit accounts. Once upon a time, you walk into Macy’s and they say, oh, sir, lovely to see you.

Please put everything on credit. We trust you. You pay at the end of the month to link that up into one common network. And then you get things like PayPal. By the time you have the internet. One of the first actors that says, we’re going to do finance on the internet is PayPal. And then before that, you had mobile phone banking, telephone banking, those kinds of things.

So there’s always been this dialogue, I would say, between communications, IT technology in one hand and the banking industry on the other. Not because you can reduce banking to information. There is that whole public money delegated finance franchise aspect. But there is also the reason why they keep their dominance or the reason why that industry changes in one part is because of the change of the who’s running the most efficient technological systems for information processing and connection.

So if you think about all that together and then the stuff that got me interested in this was my first research paper, actually, when I was still at law school on mobile money in developing countries where they were using at the start prepaid airtime minutes as a form of currency, which has a very chartalist, MMT inspired dynamic, which is that you can use those minutes to pay your phone bill.

That’s why they have value, because there’s a very specific tax that you can have to pay and that’s the way you pay it. But what people realized was that the minute that the telecoms, Kenya and elsewhere started to make those minutes transferable between actors, it started off being a thing where you have extra dollars on your account, you want to give it to your brother or your parent or something, and they use the minutes that you didn’t use that week, people started to trade them as a form of payment.

You could send a text message to another phone saying transfer $20 from my top up account to theirs. And that value became a common form of money. Now, the reason why that happened in those places, in large part not in somewhere like the United States or Europe first, is because they had underdeveloped banking systems. In places where you had EFT Plus or some sort of very good real time gross settlement system or very easy to access digital banking services, what is this adding to that?

Not much. But for places that didn’t have that where they’re still using physical cash, the idea that you could get a burner phone and go to any local kiosk that set up like a convenience store, maybe even integrated with a convenience store, and you could just hand over some cash and top up in minutes or something meant that it was an extremely useful distributed network.

And unlike credit cards and debit cards, you did not have to have a point of sale device. You do not have to have a unique piece of technology on the other side that is connected to its own parallel network. Every time you plug your card and it says dialing up all that kind of stuff. Instead, for the first time, there was this hardware revolution where everybody is carrying around their own point of sale processing device in their pocket.

And that is a very big moment, in my opinion. Perhaps even bigger than the cryptocurrency distributed ledger. The idea that instead of just having an ability to keep a copy of the ledger, what you had was an ability to process a transaction on a physical device. And that story, I think there is a cryptography component because unless the information was secure, you couldn’t trust it.

So it begins with World War II code breakers, the Enigma code and all that kind of stuff. The Navajo people using their language that no one else in the world uses to send encrypted messages to the allies. But then it goes through what was called the crypto wars in the early 90s, where a software programmer named Phil Zimmerman released an early form of public key encryption as free and open source software, which up until that point had been considered a military secret.

And so he was briefly prosecuted under the Arms Export Control Act for essentially doing the equivalent of putting up instructions on how to make a bomb online. And that was eventually dropped in part because of public pressure and in part because the surveillance interests of the state found other ways to work around that.

But what that actually did in the early 90s was paved the way for digital commerce. Because the minute you can encrypt information on the Internet, then you can start putting up credit card information without worrying that it’s just visible for everybody else to see who can access that server. And so nowadays, as you’ve probably experienced, any time you need to make an online credit card payment or something, there’s a little lock that says SSL next to it, and that’s secured sockets layer form of certificate based encryption.

And only recently, we basically moved the entire Internet from http, the original protocol of the net, to https. That stands for the secured certificate layer. And of all of the huge failures of privacy and protecting against surveillance over the last 20 years, I think most advocates will agree that was actually a big win. We made the net a lot more secure in a very short period of time.

And the idea that we coordinated this general transition over, there are still some websites that don’t have https, but the vast majority do, was actually a very big win. We went dark, quote unquote, on a lot of our information online when we browse the web. That up until that point had been like doing your laundry in a glass house.

So you’ve got that encryption software side. But I think that the hardware side is actually a very important part of the story. And interestingly enough, even though we’re talking about E-cash today as a hardware thing, and I’m sort of framing it as a novel intervention in the CBDC digital dollar crypto debate, it actually has its origins in the 90s with a debate that was going on then that really did focus mostly on prepaid cards, stored value cards, and a lot of that technology is still used today in transit systems.

Or there’s actually a treasury program called Eagle Cash that uses that for the military and war zones where they don’t have reliable access to the internet, but are also concerned about having a lot of cash in Afghanistan. You send cash to the military base, and for some reason, somehow it just ends up in the local economy shortly afterwards, and they don’t want that.

So to allow service members to buy Burger King on the base or that kind of thing, they created these stored value cards that look a lot like the other prepaid cards that a lot of people got during the Covid crisis in the CARES Act and things, but they are actually stored value rather than simply a debit card to a bank account on the back end, as those other prepaid cards work.

And that effort in part was driven by the cypherpunks, the people who from the early 80s and things were really concerned about future dystopian, surveillance state internet worlds. They were living in the world we’re in now in their minds and could see the dangers, and were trying to ward them off at the pass. A lot of them are very libertarian oriented.

A lot of them are very seduced by hard money stories, because if you hate the state but you want money to exist, you’re psychologically compelled to that kind of Austrian logic. But I think what really happened in the mid-90s was they experimented with a few different options. And one was the Mondex card, which was a partnership with a bank in the UK, and another one was the Central Bank of Finland with a card called the Avant Card.

And in fact, actually, Philip Diehl, the former director of the US Mint, who was the person who wrote the trillion dollar coin enabling statute, was one of the most visionary directors of the US Mint. He set up a number of coin programs and things. He actually testified in 1995 to Congress on a hearing called “The Future of Money”, saying that the Mint should be the one to issue a stored value card because it’s the next evolution in the equivalent of coinage in a digital world.

And that the Mint, unlike the Fed and unlike other actors, has always had a respect for privacy because you see the coins, they don’t even have a barcode on them and they don’t give a shit what you do with them once they’re out in circulation. And so there was an interesting debate going on there, but I think it was a good example of that. It’s wrong to be right too soon.

[00:29:31.060] – Grumbine

Let me ask you a quick question on that. In terms of seigniorage, and we talk about seigniorage with coins, how would that even play into this? What would that look like?

[00:29:40.270] – Grey

Well, what it means is that you would have a cost of production, whatever the cost is to make the thing, to acquire the resources and whatever, and you pay that out. And then once the thing is created, you can sell it. So if it costs $0.07 to make $100 bill, and then you pay for something with that from the government, then the seigniorage revenue there is $99.93. Seigniorage is really an accounting term.

I don’t like to use it that much, although it’s the closest term that we have, in part because it gives the impression that what really matters there is the number cost of production at the outset versus the number at the end. But those prices are relative and contingent. Really what it is is it takes a certain amount of real resources to be converted into money that has nominal value.

So that’s what’s actually going on in this situation. It would work the same way. You make the cards, you put value on it, you spend the value. And whatever it costs to make the card is the cost of that production. So the ultimate dollar value that you’re able to inject into the economy, minus whatever you have to do to get the resources to make the card is the way that the federal government has purchasing power that isn’t costly.

You can obviously abuse that and all that stuff. But an e-cash instrument is not a fiscal policy intervention. It’s a way of enacting spending commitments that have been made in other ways or allowing people to transfer money that already exists into different forms. So if you have $100 bill and you want 5 $20s, that doesn’t do anything.

If you have $100 bill and you want 400 quarters, that’s not going to do anything. If you have $100 bill and you want to exchange it for $100 on a stored value card or phone chip, that’s not going to do anything either to inflation or anything else. Or if you have $100 of Treasury securities and you want to convert that, the Fed is pretty overt about that with its own balance sheet.

The Federal Reserve notes and the reserves both sit on their balance sheet. The only difference is that one pays interest and one doesn’t. So this debate was happening in the 90s, but because it was a matter of, I think, being wrong to be right too soon when lawmakers didn’t really express much interest in it. And the bank of Finland was not a failure, but because they were central bankers and it’s still in the 90s and things.

The overarching strategy was we’re going to build this tech, but then we’re going to give it over to the private sector. We’ll manage the standards, we’ll govern the industry. But we’re not trying to do socialism, we’re not trying to provide this as a public good. We’re trying to provide this as a standardized technology for private actors. So it was never really designed to have longevity.

It was always designed to be reincubated and then handed over. But a lot of the public, I think, wasn’t primed for it. We haven’t had 20 years of patriot act surveillance state stuff. We hadn’t had the Snowden revelations. We hadn’t had the rise of Facebook and platforms and data surveillance capitalism. It was on the horizon, but it hadn’t come yet.

And, of course, we only had just a very burgeoning internet economy. We didn’t have apps, and we didn’t have everybody with a phone in their pocket and all of that kind of stuff. So the conditions weren’t right for mass adoption, both sociologically and techno-politically. People weren’t thinking of themselves as digitally native consumers first in many respects and physical second, like they are today.

If you say the government is going to look at all your stuff, you come across as a tin hat person. Even in the last decade that I’ve been doing this work, it’s been notable how much that’s changed. When I first had classes on this, and people would tell me these things, my classmates would roll their eyes and snort and all that kind of stuff. And nowadays I don’t get any of that from my students.

They know this is a real problem. But what ended up happening is that a lot of those cypherpunks went private. Essentially, they said, look, okay, up until now, we’ve been operating on the assumption that there will be a government or a bank issuing the money. All we need to do is build the technology for private payment.

But since those public and centralized banking issuers don’t want to do this, we have to do it ourselves. And I understand the motivation there, but it was wrong headed I think. Just because it’s hard to access the Oasis doesn’t mean you turn around and walk back into the desert. But they switched over to forms of privately issued money that don’t involve a central issuer.

And that’s what really, I think ramped up interest in what would eventually become the Bitcoin Ethereum crypto, is that they had to solve two problems. Up until that point, all we need to do is solve the problem of Privacy respecting, decentralized, peer to peer offline payments. Now we have to solve that problem and have to have a market based or libertarian monetary policy.

And that’s where you get to mining and blockchain and all that stuff is that you’re not only verifying the transactions, but you’re also creating a theory of how the money gets in there in the first place. There is no central party determining the amount to issue under what conditions, the system has to do that itself. And that creates a very different technical specification.

And that’s where you end up moving away from hardware, because even then you have to rely on the hardware manufacturers or trust them. And it means that you start looking at ledger based distributed ledger options, where you’re actually rewarding people for keeping the network up by paying them the newly issued money.

And then, of course, there’s all the gold bug logic, scarce numbers and stuff in the early versions of that. Some of them don’t have that today, but a lot of them still do. And so I think that’s one way to understand this history. Just like if you go back to that 13th century banking history, we had a fork in the road between account money and bearer money.

In the late 90s, you had this fork in the road between versions of the privacy oriented digital currency that were centrally issued but decentrally settled, and ones that were privately issued and decentrally settled. And what the E-Cash Act is trying to do is to occupy that square in the four square box of public money versus private money on one hand and pro privacy and anti privacy on the other.

To occupy that box of being pro public, pro privacy. And if you have libertarians on one hand being private money and in theory, pro privacy, and then you have something like a CBDC that’s public money, but also isn’t preserving those privacy features of cash. The debate has, I think, stagnated, because the public guys rightly say private money is inferior. It’s risky. It doesn’t have all the benefits of public money. They’re not all MMTers, but they get that basic MMT.

[00:35:56.510] – Grumbine

Sure.

[00:35:57.160] – Grey

And then the crypto guys say, well, have you met the state? Have you met the NSA? Do you really want to trust these guys to have all of the data of every transaction you’ve ever done? And that, I think, is also a valid critique. Their solution is wrong, but their diagnosis of the problem isn’t necessarily wrong.

And the idea of saying, well, actually, we can square that circle. We can have public money with privacy characteristics has not been a perspective that’s had much oxygen in the debate up until now, in part because it’s been so focused around CBDCs.

[00:36:39.290] – Intermission

You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or modern monetary theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube and follow us on Periscope, Twitter, Twitch, Rokfin, and Instagram.

[00:37:30.150] – Grumbine

So tell me, who is the sponsors of this bill? Let’s get into how this is even coming to be.

[00:37:35.980] – Grey

Yeah, sure. So I actually worked with Congresswoman Rashida Tlaib first on the ABC Act, and I think I we might have talked about in a previous podcast, and that was an attempt in the middle of Covid to deal with this question of how you actually get stimulus payments out or relief payments out to people that actually get to everybody.

Because if you’re going to say we’re going to do it through direct deposit and everybody who’s unbanked, which is literally millions of people and millions of some of the most vulnerable people don’t get those direct debit payments. And we saw that actually happening. We could see that even in February of 2020 that that was the way things were going to go.

And we said, well, actually, the treasury has technology right now to issue prepaid debit cards that aren’t linked to an existing person’s account. They do have an account the back end, but it’s a numbered account. So it still has the account architecture, but not the way that we would normally have to set up an account with going into a bank.

And we can give those out to people. We don’t have to wait for them to already have a bank account or have filled out a tax return, you can simply give them one of these cards, which is what, for example, the governor of California is proposed to do with these gas cards now. And it’s a bad thing to subsidize, but the idea of putting on a card and giving it out to people makes a lot of sense.

But we’re also looking at the time, how do you actually make sure it gets to people? And we came up with the idea of an emergency responder call that was very popular, where you actually go out and perform a wellness check on vulnerable populations and you put the card in their hand while you’re doing that.

You knock on the door of elderly people, disabled people, say, how are you going? Hope you’re ok and all the in the crisis, obviously keeping a distance. And then you say, look, we’re here to give you a relief payment. Want to see if there’s anything you have to say to us, any other additional support services you might need, etcetera.

And if you want to sign here, we can indicate that you received your card. And if you don’t have a traditional ID because you’re undocumented or something, we’ll use an affidavit as an alternative, like you do for voting, because just like with voter ID, requiring bank ID to receive your stimulus payment is just a way to exclude marginalized populations.

And we included that in that bill as a forward looking provision. It wasn’t a directive right then, but it was a sense of Congress saying, we think this is a good thing, in addition to the things we are doing right now that the treasury should look into issuing a form of digital cash that has all the privacy and anonymity features of physical currency.

And that bill was sponsored by Congresswoman Rashida Tlaib and Ayanna Pressley, Ocasio-Cortez, Ilhan Omar, all the squad and others and Pramila Jayapal, the head of the Congressional Progressive Caucus. That became very famous, obviously, for the “mint the coin” part of it, for the financing. But the prepaid cards and the emergency responder call were also parts that I was very proud of.

But we then worked with Congresswoman Tlaib because of that positive experience on the Stable Act, which I think I’ve also talked about, which is regulating private stablecoin issuers as the shadow banks that they are, and requiring them to get a banking license, which we released at the end of 2020. And at that time, everyone said that we were radical and extreme and crazy, and I was labeled crypto’s public enemy number one for a hot minute.

And then, of course, now what we proposed is the official line of the Biden administration, the President’s Working Group report on stable coins recommended pretty much down the line what we have been recommending with that act, that they have to be licensed as banks and they have to get deposit insurance.

But that bill was co sponsored by Rashida Tlaib and Stephen Lynch, who is a moderate from Boston. He represents a lot of blue collar workers. And he is the head of the Fintech Task Force, which is a specially commissioned task force, part of the House Financial Services Committee, which is the committee responsible for banking regulation, money, the Federal Reserve.

So they’re the ones where you have your semi-annual Humphrey Hawkins hearings, from the Humphrey Hawkins Act, where Chairman Powell goes to testify and everybody gets all their pot shots in on him and their sound bites. Where he talks about how he is definitely achieving full employment and all that stuff. So this is the House Committee that does banking money and finance, essentially.

And then the Fintech Task Force is the one commissioned to deal with what the hell’s going on right now with the internet. And he was a co-sponsor of that bill, which was a very nice collaboration between the progressive and the moderate wings. And we had a very positive experience with that collaboration. And then recently he had a new economic policy director, Davina Khan, who’s absolutely fantastic, a former attorney from the CFPB.

Another woman of color to go with the other staffers that we had worked with, all fantastic women of color. At AOC’s office, Claudia. And then Rashida Tlaib’s office is Chastity Murphy. And then Pressley’s office was Ibrahim. One of them is now at the SEC. One of them is in the White House working on crypto. One of them is a treasury working on digital assets.

So they’re all going on to even more high profile events. And Davina said, well do you have any ideas of things that we can do? And we said, well, this E-cash idea I think is ripe. And we’ve been talking a lot about Fed accounts. We’ve been talking a lot about CBDCs. But up until now, this anonymity question, the cash-like bearer instrument has basically been ignored.

And the Federal Reserve has basically dominated the conversation about a digital dollar through this label, through this framing of a CBDC, a central bank digital currency, which doesn’t actually tell you anything about what it’s going to be. It doesn’t tell you who it’s for. It doesn’t tell you why it’s being issued. It doesn’t tell you how it’s designed.

All it tells you is that the central bank is going to be in charge. But you haven’t decided anything other than “it’s me.” That’s what the central bank is saying. But then in the very next breath, they say, but of course, this is a matter for Congress to decide ultimately. But that said, while they’re waiting to act, which is waiting for Godot, while they’re waiting to act, we’ll start doing some research and we’re going to start to think about what we’re able to do from our institution.

And it turns out we don’t really like it, and we don’t really think that we can provide a retail system because we don’t really do retail services. And we probably want to partner with banks, because that’s how we do everything else. And we will of course, have to make sure that there’s identity restrictions, and we don’t want to make anyone to use this for illicit purposes.

So we make sure that we can shut off any account that’s doing naughty things. And so suddenly you start off just by calling it CBDC, and you haven’t even made a single decision yet, right? There’s not a single law that’s been passed, but in the process, the intellectual imaginative, ideological design space has been extremely narrowed to a very particular vision.

And rather than attempts to fight directly with the Fed about that and say you’re wrong, you shouldn’t do it this way. This is dumb and bad. And who are you even to make decisions about Privacy on behalf of the public? You’re a bunch of macroeconomists who are trained in statistical modeling, probably poorly. Why the hell are you suddenly civil liberties experts?

But of course you can’t really fight with them that way, because central bank independence is an amazing symbolic shield. Any time you try to tell a Fed how to suck eggs, they’re going to say you’re politicizing the central bank, and then you’re immediately cast out from respectable society. So we have to think of a way to have this conversation properly, to talk about what’s a really important design consideration, and to essentially launch this critique of the narrowing of the imaginative space around CBDCs without actually having to fight on the Fed’s terrain, because we were going to lose.

And luckily enough, in the US context, the money power is shared, legally speaking, between the Fed and the treasury. The treasury is the home of the Mint. The Mint existed for over a century before the Fed existed. There was a whole system where the treasury managed payments for many decades, called the Independent Treasury system in 1900s.

After Lincoln in the 1860s with the National Banking Act, and then Greenbackers, there was issuance of paper money directly by the government through the Treasury, the Bureau of Engraving and Printing. And up until the 1970s, Greenbacks circulated alongside Federal Reserve notes after the Federal Reserve was established in 1913.

And even today, the Federal Reserve notes that we all use in our pocket are still printed by the Bureau of Engraving and Printing. So, in fact, the only actors in the government who have the expertise and experience of issuing hardware literal hardware instruments, physical instruments, manufacturing them, making them, making sure there’s no counterfeiting doing the plates and the dyes, and the minting itself and the printing itself was the Treasury.

So if you haven’t had your brainworms from the CBDC discourse, and if you didn’t share the ideological predilection for central bankers to collect as much data as they can and to give the cops and the spooks everything they want, and you were to start from a different perspective and say, we’ve enjoyed cash for thousands of years.

We’ve enjoyed currency, bearer instruments as a form of economic freedom and privacy. How do we preserve that in the digital world? Which institution or agency in the federal government is best positioned to do that? Who provides retail based hardware instruments that can move from person to person? Well, the answer is the treasury.

Even in the digital realm, even more recently than the 1860s or the 1790s, you have the rise of these prepaid debit cards. Now, those are issued by private actors in partnership with the treasury. But it’s not the Fed that does those programs, it’s the treasury. When we received those CARES Act cards, it was the treasury that sent them.

And when we get snap cards and EBT cards, even ones that are administered through the states, they usually use the prepaid card technology of the treasury. And it’s the Bureau of the Fiscal Service that does that. And the Bureau of the Fiscal Service also does those Eagle cards in the military context I mentioned.

So if you were to close your eyes and wipe away your ideological presuppositions, this is all a Fed central bank thing. And you’re asking yourself, just purely based on the technical specifications of cash alone, who should issue it? The answer would be the treasury. But this is the difference between starting from the institution. CBDC tells you nothing other than it’s the central bank versus starting from the technology.

We want this kind of technology, who’s the best to do it? It’s a very different starting question that leads you to a very different answer. Now, other places don’t have the luxury of the money power being still shared between the two. A lot of countries have either baked into their Constitution, like Brazil, that it’s going to be the central bank that actually makes paper notes and coins, or in somewhere like Europe with the European Monetary Union, you have the ECB being in charge of all of this, and individual countries aren’t actually able to intervene there because of the international treaties that say that it has to be the central bank.

Now, I forget the exact provision, my understanding, and I could be getting this entirely wrong because it’s been a while since I looked it up. But when we were dealing with everything with Greece and the possibility of issuing a parallel currency with Syriza back in 2015, we were scouring the European laws. And I believe the national central banks, which are the level below the European Central Bank.

That system has three levels, whereas ours only has two. It has regular banks. And then the central bank, they have regular banks. National central bank, and then the ECB above that is a sort of super central bank. My memory is that national central bank still has some control over coinage, but not paper.

So maybe there’s a loophole in Europe, but in general, this is really a political strategy that works uniquely in the US context, because the US has this shared Treasury-Fed money power dynamic, but also politically, if there is a country on the planet that still cares about paper currency, symbolically, the US dollar. Right? The dollar bill, the $100 bill is a symbol of American power and hegemony and all that kind of stuff.

I’m obviously very opposed to American imperialism, but that idea that my cash in my pocket is mine, I can go somewhere else and I can reinvent myself. And that helps me is, I think, a pretty powerful idea. It’s the open road and cash and guns maybe as well. But the very American set of values there. But even around the world, people use US cash, right?

It’s cultural symbol of money in every form of media. And dollarized countries rely on it instead of their own currencies and things. So if there was a country on the planet that was likely to actually put up a fight against the surveillance state, it might actually be the US, and it has the added benefit of being the global Imperial hegemon.

So that if we win here, we might actually win elsewhere. Whereas if you try to do this stuff in Norway, and then the rest of Europe or America says we don’t like it, well, good luck standing up against that as Norway. If they get calls from the American intelligence services, what are they going to do? So there are unique reasons why this made sense as an intervention strategy here that I wouldn’t necessarily replicate automatically elsewhere.

But luckily, this is a pretty good place to take a stand internationally because Europe is not as far ahead on that issue. China has already moved ahead with their CBDC. But Interestingly, even China, the Paragon of the surveillance state model, has actually incorporated offline capable prepaid cards for small value transactions into their digital yuan structure.

And European Central Bank, just today one of their senior officials, a guy named Fabio Panetta, just did a talk where he said that they had been looking into offline capable digital cash for small dollar transactions. Now they were talking about something like 200 or 300 euro, which is a pretty big reduction in freedom compared to the $10,000 limit for physical currency.

So I would definitely be on the side of more transactional freedom there. But there are reasons why we’re doing it at the treasury in the US context as the intervention.

[00:51:11.250] – Grumbine

So with the limits, it sounds like there’s caps on what the proposal would allow for. Just like your ATM card.

[00:51:19.890] – Grey

Yeah. We didn’t put specific numbers in the bill because that’s going to be one of those political fights, the old line with union negotiations and say how much is enough, how much of a wage increase and the answer is: “more”. And so what’s the right limit? Well, the answer is probably more than we’re going to get politically. So we just keep pushing for as much as we can.

But the important thing is that those limits are not being imposed by central command. They’re baked into the hardware. So it’s not a matter of if we don’t like what you’re doing, we’ll just shut your money off. It’s a matter of you get this card. It has a maximum balance of 2000 5000, $10,000, just like physical notes have denominational caps.

But nothing’s stopping you from buying 20 cards. It’s just that the act of having to buy 20 cards instead of one where you can put a billion dollars on a card, means that there’s actually a bit of logistical friction here. Unlike with physical currency, you don’t need to be transporting pallets of cash on the back of a plane or something on the back of a truck.

But the physical cards mean that this isn’t simply open season to be doing billions of dollars of dark money transactions. This is designed for average people to do the kinds of financial Privacy issues that marijuana businesses might want to deal with, sex workers might want to deal with. Most importantly, perhaps, political dissidents might want to deal with.

If you want to donate to the WikiLeaks or Palestinian activists or something, you don’t want to be harassed by an authoritarian regime. If you want to donate to the NAACP in 1950s in Alabama, and you don’t want the racist governor of Alabama to be able to see the donor list to harass all of the supporters, which was a real legal case that went up to the Supreme Court.

And the Supreme Court said you have a First Amendment, freedom of association right to not give up that information. Then you need something. You can make those kinds of transactions, not $25 million at a time, but maybe five or $10,000.

[00:53:06.370] – Grumbine

Let me play Devil’s advocate. In terms of political action, there are caps on donations to political action committees. This presents a political conundrum because it’s untraceable, it’s invisible, and you could easily use this to give political donations. It’s the same thing, I guess, with cash. Are these types of things in consideration?

[00:53:30.520] – Grey

I think they are. I think that the other side of it, though, is that what we’re talking about here is not trying to allow, for example, corporations to do this. And I would support as much transparency on corporations as possible. They could have very low limits on how much cash they’re allowed to hold at any point in time.

And I would support regular inspections of any company that wants a limited liability corporate charge and make sure they don’t have more than that cash. But also, I think it’s important to know that if you’re a billionaire, you don’t control elections by donating $2,700 to a politician. You do it by building 25 think tanks and donating $100 million and building an entire intellectual regime.

And that happens in plain sight. And simultaneously, if you’re doing large scale money laundering for the Mob, where do you go? You’re not doing barrels of cash that much anymore. You’re going to HSBC. And again, they’re doing in plain sight. And if you’re a Russian oligarch, you’re not holding your money again in physical cash.

If you want to, you hold it in gold or art or nowadays in crypto, but also you just store it in an offshore bank account. So I find it very hard to take seriously the concerns about dark money when the reality is that all of the really big, important kinds of dark money now nobody’s doing because they don’t want to. So if you’re really serious about those, let’s go after all of those things.

And then if there’s still a problem, then maybe we can start talking about some sort of limits on the kind of cash that gets used by average people against the surveillance state and against the banking system. Because at this point, the people who are most hurt by the war on cash you’ve had Brett Scott, the war on cash is very real.

The people most hurt by that are not oligarchs trying to squirrel money away or the Koch brothers or whoever else. It’s communities of color. It’s people on the margins of the gray economy, and it’s political dissidents. It’s Palestinian activists, it’s WikiLeaks. And I think that’s the thing that we need to keep in mind here is that the traditional scammer on the Internet has always involved what they used to call the four horsemen of the Internet, which is child pornography, money laundering, guns, I think maybe, and then terrorist financing or drugs.

So the idea is if we have any freedom at all, people will use that freedom to do bad things. My response to that is always not to sound like a libertarian, but really more like a civil libertarian. And there used to be a very vibrant tradition of that on the left and still is in some places. Is that’s also true of a pen and paper? You have a pen and paper. People can write very dangerous ideas on them.

And for a very long time in history, the answer that was to restrict who could have access to pens and paper and printing presses and then restrict even before that the ability of anybody to learn how to read so they could even use those tools. So I’m very much of the belief that access to money in an economy like today is equivalent to having access to water, not having access to a lot of money, but having access to the monetary system. You don’t go up to a tap and try to get water from a public tap and it says, do you have a criminal record?

[00:56:18.000] – Grumbine

Right?

[00:56:18.500] – Grey

What are your views on Donald Trump? Do you support the Communist party of the United States? That’s not what water is there for. Water is there to be used. And cash has been like that for a long time, for literally 5000 years. It’s dumb tech. It doesn’t snitch on you. You have legal requirements to report. And we can use the points of intersection between cash and other institutions like the banking institution to impose restrictions at those places like the customs ports.

And you can do old fashioned gumshoe detective work. You get the wiretap, you trace people around, you get a warrant, probable cause, all that kind of stuff. But what you can’t do is sit in central command and shut somebody off so that they can’t even buy breakfast. If you’ve ever watched Enemy of the State, Will Smith’s character just gets completely shut off from everything. That’s the thing. That’s the thing that we’re trying to avoid.

[00:57:10.960] – Grumbine

We’re watching sanctions, a shutdown of the Swift system with Russia, and there’s so much to dig into there. But with something like this, I guess people are leery not just the US, but around the world. You mean to tell me they could just flip a switch and it’s done?

[00:57:27.040] – Grey

Yeah.

[00:57:27.650] – Grumbine

Yeah. And so I guess my question would be, what’s not to love about this? Let’s be libertarians for a minute. Other than the fact that it’s issued via the central government, why would I object to this?

[00:57:39.890] – Grey

Well, that’s a pretty big one. If you’re a libertarian and you’re not a gold bug, you’re in a very vanishingly small sector of the libertarian world. And if you’re a libertarian and think that any public good is worth providing by the government, you’re probably in a small, vanishing, exceptional libertarian role. But then, of course, you have to remember that we’re living in the crypto gold rush right now.

And so the idea that the government might actually be in a better position to do this means that all that money you’ve been investing in, all your crypto entities saying we’re the only ones that can do this is suddenly not looking as good. If you’re Peter Thiel and you think you’re a fucking freedom fighter, then the idea that you’re actually part of the problem and you’re barking up a stupid tree is not a nice thing to find out.

You’re certainly going to resist it. The other part of it, I think – I try to say this to libertarians and who knows how much they can hear it – but in my view, at least most normies don’t give a shit about monetary theory. As you know, we’re trying to get them to care. But most people who may find crypto interesting are probably finding it interesting because they invested some money and made some good returns so that classic numbers go up.

That’s one. Two, they found it easier than to set up a bank account with less ID and stuff. So essentially, it’s more convenient and less identity focused, which E-cash is better even than that. Or three, they can use it for cheap remittances or stuff like that, which again, E-cash can do too. But most of them are not there because they ideologically believe in supplanting public money.

And so if you could offer them a lot of those operational logistical user conveniences, but with all the added benefits of the same public money that they’re used to receiving. I think that actually has a pretty good chance of actually convincing people. And more importantly is the flip side. If we lose this fight, if Chairman Powell and others win, full anonymity is, quote, not possible, not feasible with public money.

And that becomes the consensus position that Progressives and Democrats and average Republican and whatever agrees that we’re not going to have anonymity in public because it’s too dangerous, because of terrorists and the money launderers and all this stuff. Why the hell does anyone think that they’re going to let it continue to exist in crypto? They won’t.

Now, you can claim that crypto is too technically resilient to shut down. I think that’s bullshit. I think recent efforts with the Canadian truckers and others have shown that you can always find points of leverage. Certainly if you spend some time with your 20th century totalitarian history, you just go and eventually shoot the fucking people if you want to.

But the idea that you will lose the fight for privacy in public money, but then win the fight for privacy in private, I think is naive. So even if you hate public money, even if you’re a libertarian who never uses cash, you think people who use it are dumb. Have fun watching your money get debased, blah, blah, blah. Even if you’re one of those people, you should hold your nose and support this, because this is the battleground over which the fight for monetary privacy is gonna take place.

[01:00:30.490] – Grumbine

Now, let me take it from a leftist perspective. The left is not overly thrilled with the neoliberal regime, this overly friendly business regime that places capital and property over people. And so further enhancing the state once again takes them further from what they would consider to be a worker led society. Hypothetically, you hear this from a lot of these hard currency neoclassical, Marxists, I guess.

[01:01:03.530] – Grey

Yeah. Sound finance socialists.

[01:01:05.620] – Grumbine

There you go. How would you respond to them? Because each of these groups has their own ideological bend. I favor the left, but in terms of the monetary system, we couldn’t be further. How would you approach this with them?

[01:01:18.370] – Grey

Yeah, there’s a couple of things you’re not going to convince everyone, but I think one thing is in the same way as we’ve talked about the job guarantee. In one sense, it’s a state initiative, but the other sense it’s actually preserving rights of individuals against the state. Unemployment is the thing the state enforces on you. And a job guarantee is a way to negate the negation.

It’s to push back and to say, look, yes, state power exists, but in one sense, the point of state power here is to protect against its own abuses by giving us things that we can organize around and demand. If you get rid of this right, they’ll be rioting in the streets tomorrow because not only there’s a law, but there’s a whole cultural value around it.

And that’s, I think, where the leftist case for resistance against censorship of speech and stuff comes from people like anarchist like Emma Goldman is how the hell are we going to organize workers if they can shut down our communications platforms? How the hell are we going to actually fund unions if they can shut down the payment system between the money going through.

There’s all sorts of ways in which the minute you don’t have these protections built in through public action, the effect is actually to weaken the ability to resist against the state. So just like I would say, a job guarantee is not a huge increase of state power vis-a-vis the individual. It’s actually putting more power on the individual because the individual can say I demand a job and I don’t want to hear you tell me you can’t give it to me.

That’s bullshit. I want to be able to use my money, how I want to use it, and I don’t want you to tell me I can’t. That’s some bullshit. And I think that should sit with some of these actors on one hand. Another thing is we’ve had cash for thousands of years. Giving it up in this moment is the extreme position and there is a war on cash.

And if you look at countries like Sweden and China, people are moving away and away from cash. America is a little bit slower because its payment system, despite having the most advanced technology in the world, is also very archaic elsewhere in the same country. But the idea that we’re using less and less currency and more and more digital transactions means that even if cash continues to be used, the range of context in which you can use it is shrinking.

And that’s why, for example, progressives in Philadelphia passed a law recently requiring merchants to accept cash because a lot of them have been saying we only go cashless. And when you saw Covid, there was this big PR campaign saying cash is dirty, even though the World Health Organization said there was no evidence that it was facilitating the spread of Covid in any meaningful way.

But it was enough to be another talking point in this general ideological campaign against cash. As again, our friend Brett Scott has written so eloquently on. And so in that respect, it’s not that money is great. Most leftists want to go beyond money eventually, but the idea that the monetary world that we live in is better for average people when cash is there versus it all being surveilled.

And of course, remember, this is not an either/or option. This is a yes/and option. You want to put your money in an account, you want the benefits of chargeback protection, anti fraud protection, and all that kind of stuff. You do it. You can have both. This is not trying to be zero sum game. This is trying to be pluralistic and say we want to keep the options that we’ve always enjoyed.

But then if you actually again, as I said before, look at where the dissent falls hardest. It’s sex workers who get kicked off platforms which last I checked, is a demographic leftists is supposed to care about. It’s marijuana businesses in the war on drugs. It’s being able to run one of these legal marijuana businesses in states where they’re trying to deal with the historical inequities of black people being excluded from legitimate businesses by giving them priority preference for new marijuana business licenses.

But they can’t even get a bank account because the federal government won’t give them one. So they’re all stuck using cash, which is a pain in the ass and makes it hard for them to succeed. As I said before, it’s political dissent and organizing, and Venmo and others have shut down donations to certain activist groups.

So again, just like it’s problematic to be doing all of your leftist organizing on Facebook or Twitter or Slack, it’s problematic to be doing all of your financial transactions on a platform where your enemies can shut it down at any point. Now, obviously, in theory, the whole government could just stop printing money or something, but that’s actually kind of like them putting a gun to their head and saying I’ll pull the trigger because there’s no way the government continues to provision itself.

It doesn’t have that monetary system. So as long as cash is part of what they’re issuing and we can demand that and fight for that and they can’t get rid of it, then at least the payment system is not one more tool of oppression. The other big thing I would say is just that the financial inclusion angle is really important.

We care about giving people access to digital payments so that they’re not excluded from that system. And right now, if you’re undocumented, it’s very hard to get a bank account. If you are dealing with domestic abuse and violence, it’s very hard to get your own bank account. If you don’t have a home address, it’s very hard. Millions of people were excluded from the CARES Act cards because of those problems.

And when it comes to trust, obviously the biggest reason why people don’t have bank accounts is because they’re poor and the bank accounts are too expensive with overdraft fees and things. But the second reason on most consumer surveys is that they don’t trust them. They don’t trust banks, and a lot of them don’t trust central banks either, for good reason.

So if you actually want people to use a government digital dollar, if you don’t want to fall flat on its arse like the Obamacare website, you need to actually design something that people are going to want to use and feel comfortable using. It has to be a good user experience, and that means actually backing up what you say when you say you care about their privacy.

Because up until now, and I follow these conversations very closely, every central bank report, every central bank talks about CBDCs has the same line about how it’s important to balance privacy and national security. But when you actually look at the details, when you see what they mean by that, they mean anonymity is debt.

They mean we’ll give the cops and the spooks a backdoor, but we promise to only use it under very limited conditions. And that’s a kiss of death for a system. That’s not going to make people use it. And that plus the way that we talk about CBDCs with exceptions, my advisors Sally and Bob and others have been really good at articulating a strong public case, and I support Fed accounts entirely.

And there’s a whole separate debate about how to make those accounts as private as possible. But without this E-cash layer, what is otherwise a very positive step in postal banking, Fed accounts, public banking can become a dystopia. Where just like Social Security or things like that, you’re creating a massive database that can be abused and hacked and things by malicious actors as well as actors within the government.

We just had four years of Donald Trump. Does anyone believe that this system is not one that’s going to be subject to attack in the future or political manipulation the minute it’s created? Not saying we shouldn’t do it, but we have to be clear headed about those risks. So if we really care about financial inclusion, cash has been and remains the most inclusive form of monetary technology we’ve created.

And we need to think about that kind of thing. Which is why after we did that ABC Act back in 2020, the second round of stimulus payments had a lot more of an emphasis on prepaid cards. I can’t claim direct credit that we did that, but we certainly pushed the prepaid card issue into the conversation at a time where it wasn’t really being talked about. It was all direct debit and it was too slow, and they didn’t have that whole emergency responder core element that I think is very critical. But it was certainly better than having only direct debit.

[01:08:35.250] – Grumbine

Right.

[01:08:35.630] – Grey

Which was what the first round mostly focused on. So I think that’s the kind of leftist case. If you care about marginalized populations, you care about political dissent, you care about financial inclusion, and you care about recognizing not just rights in the legal sense, but recognizing claims on the government that actually the government has to themselves provide, but in an almost antagonistic relationship with the public, where the public is demanding it, not just asking nicely, then I think digital cash is a very important step.

And I’ve said in other context that it’s not an extreme idea, it’s a small c conservative protection of an existing freedom. I don’t mean conservative as in right wing, I mean, to try to conserve something that is currently being crushed to death in the darkness of night. We’re not having a debate in the public where everybody is being asked whether they want to have all their transactions potentially monitorable for the rest of time or not.

A lot of people are extremely shocked to find out about the Snowden revelations. A lot of them are extremely shocked to find out all the Cambridge Analytica and the Facebook data analysis. So it’s not like we’ve had this big discussion where everyone said, “yeah, cash is old. Let’s move on.” It’s just died this death of a thousand cuts and slow attrition and being tranquilly drugged in their sleep until their heart stops beating. That’s the dynamic we’re living in. Unless we actually actively resist that, we will just drift down the river, over the waterfall and die.

[01:09:58.630] – Grumbine

You brought up a great point. So much of the information/disinformation is now being blocked by these fact checkers. How we get information out to people is so volatile right now. Case in point, we are posting things from Fadhel Kaboub or from Warren [Mosler] or from you talking about inflation. We’re talking about gouging.

And our posts would be removed from Facebook. They violated terms of service because we said that inflation was being brought on by gouging. They said, fact checkers, claim that false, and took the stuff down and said if we continue doing this, that we would lose our accounts. This kind of oppressive state apparatus, even though these are private actors, the state has weighed in heavily trying to direct their actions.

And whether you like the January 6 event or not, it really gave the runway to some very draconian behavior. And I could see where this E-cash solution seems like a tremendous departure from that kind of an approach to things. How do you measure that out? Because it seems like the people that are more for oppression and state surveillance are in charge. Does this have any hope of getting through, or is this just more an aspirational bill that you’re hoping will start the conversation off in the right direction?

[01:11:16.330] – Grey

Well, the first thing is, I think, as I said before, there’s so much of the debate right now has been between public money and private money, where they’re talking past each other, where the public money people are making the correct observation that private money is inferior and a lot of private money making it correct observation that up until this point, public money advocates haven’t really centered privacy concerns at all.

But this is a new intervention. The ACLU has not had a position on money in like 15 years on this stuff, in part because they just didn’t understand a lot of it. And then when we proposed this bill to their senior political strategists and technologists, they said, look, there’s some technical things we want to make sure can work as advertised, but this is the best thing we’ve seen.

Even crypto libertarians at Coin Center and others were saying, Look, I don’t know if we want a government digital currency because, God forbid we support any government thing, but if we were this is the best version we’ve seen. The Republicans on the House Financial Services Committee like Tom Emmer, and now just today Ted Cruz saying we don’t want the central bank to issue a retail account because it’ll be a surveillance coin. Fuck them.

But if you can take them at their word, then they should at least support this as an alternative. And we had groups like ACRE and Demand Progress and Americans for Financial Reform, progressive groups behind this, and it’s a pretty diverse set of interests. Now, whether or not it’s going to be powerful enough, whether or not we can actually help people understand how important this is, remains to be seen.

I appreciate the work you’re doing on this podcast and all the other media coverage we’ve had this week, and we’ll obviously keep trying to push the point, but one of the hard things is just making it even feel real. I think it was Boots Riley, on one of the interviews I saw about his great movie Sorry to Bother You when he was saying if you’re trying to make revolutionary art, one of the things you have to be careful about is not making success seem impossible because if you feel like the only thing that you can do is despair, then your brain is going to psychologically downgrade the risk.

Basically just a sanity mechanism. If you cannot do anything about it, you will discount the risk because the alternative is just tearing your hair out. And I think this is one of the big problems that we’re seeing with climate is that so many people feel like it’s not possible to do anything and why the Green New Deal and the Sunrise movement is so important because they at least give people an idea of what we need to do, what it could look like.

That’s not to be naive about the odds, but it is to say that fatalism is its own self-reinforcing mentality. And one of the challenges is that you have to walk and chew gum at the same time. You have to fight the revolution and keep the lights on. So about Facebook, what if ten years ago we had all started convincing everybody in this broader community to move over to self hosted, privacy respecting alternative and not to leave their entire lives, but really started making the case that this was important and to be building that in parallel to what we were doing on Facebook so that if everything does get destroyed on Facebook, there’s a record somewhere else.

This is for example how Mastodon, a decentralized federated alternative to Twitter works where you can post something there and it reposts onto Twitter and things like that. And the communication hub that we use, Matrix does a similar thing. It has bridges to every other Slack and WhatsApp and Signal and things so that you can use their platform to send messages to those other systems and it all comes back there so that over time you can soft migrate over to a system you control.

It’s all free and open source software and you can run it on Raspberry Pi at home, all that kind of stuff. And it doesn’t have anyone in the middle to stop you from communicating to someone else. It’s hard to do that. It’s hard to do that at the same time as to try to actually do all the work and build the organization and actually have a hosting mechanism. My father used to work in the federal government of Australia, and he said there was a line in the bureaucracy they used to use a lot, which is there’s never time to do it right. There’s always time to do it again.

[01:14:56.590] – Grumbine

Right. [laughs]

[01:14:57.420] – Grey

And unfortunately, in this moment, I think we might not always have time to do it again, certainly for climate, but even maybe for these totalitarian threats, because as my old law professor and technology futurist, Eben Moglen likes to say, this generation is the last generation lived on both sides of digital device.

This is the last generation that knew what it was like before everything was online all the time, everyone was connected all the time. And you remember, at least some of us remember what it was like to be offline. God forbid I’m online all the goddamn time nowadays. The psychological difference of being able to say something to someone else and not worry it’s being surveilled.

Or to go somewhere and not worry you’re leaving a mark on your phone or you want to buy some weird kinky sex stuff and not have to worry that there’s a track record that’s going to come and get you when you want to run for office ten years from now or something. A lot of people will just never live in that world unless we say, hey, this can exist, it has existed, it should continue to exist.

But people are very malleable. Whole populations are very malleable. If you grow up for centuries at a time thinking that only the priests get to read and that God only speaks in Latin and not to the popular people, then that’s a narrative that people will accept for 1500 years. Until the King wants to fuck someone else or something.

And that kind of thing becomes a really big challenge because we’re building this infrastructure now. We made mistakes in the 80s and 90s with the Internet, we made mistakes with the banking system. And we stand on the precipice of building a new digital dollar that’s going to be used all over the place and isn’t going to have this functionality.

[01:16:31.630] – Grumbine

And that is the $50 million question of how do we avoid it. And I think you’ve come up with an angle here.

[01:16:38.340] – Grey

I think Brett Scott’s work on defending physical cash is equally important here. But as I said, there are whole contexts in which we just can’t use physical cash today. And what we need to do is take that war against the war on cash and take it online.

[01:16:52.450] – Grumbine

I think that’s a fantastic way to end this podcast. Rohan, I really appreciate this. This was an incredibly deep dive. I’m going to listen to this podcast several times to really consume everything that you brought to the table. Let me ask you, I know a lot of stuff is going on in your world. Is there anything you’d like to tell the audience that’s coming up that you are involved in?

[01:17:14.290] – Grey

We’re going to keep working on this, and there’ll be some other events and resources and things that we’re going to keep putting out here. But I think probably my big message would be – especially to the MMT community – which is, take the technology of money seriously. Take the materiality of money seriously. It’s important to make sure people have money, but it’s also important to make sure that people can use that money in ways that actually empower their freedom.

The very first book chapter I ever wrote as a contribution to the MMT discourse comes from a different world that I used to come from, which was the world of musicians and artists and intellectual property. If I wasn’t trying to deal with this stuff, I’d be an intellectual property person. But it was called Who Owns the Intellectual Fruits of Job Guarantee Labor.

And my point was that you could imagine a world in the future where there’s a good minimum wage, there’s good health care, there’s good benefits, there’s a job guarantee for everybody, and environmentally sustainable production and all of that kind of stuff. But all the data from every worker has been collected and analyzed and used to monitor.

And all of the output that the people create related to knowledge and art and music is either proprietary from the entity that hires you or proprietary for the worker themselves. So you’re doing the equivalent of paying Larry and Sergei Brin at Stanford to build Google so they can then privatize it and build surveillance platforms.

So a job guarantee is fantastic. I’m obviously on board with it and doing everything I can to make it come into reality. But if we build a job guarantee with a bad data and information layer, then a very very good idea can become quite dystopian. And we can do amazing things with redistribution and allocation and creation injection investment of money.

But if we actually think about how we use it and how that fits with the world of the Internet and data capitalism and surveillance capitalism and all that stuff, then we’re leaving a huge set of issues on the table for someone else to define. And if we call ourselves people who care about modern money for the last four or five thousand years, well, that’s pretty much the same time frame that we’ve been dealing with tokens and accounts and all this kind of stuff.

And certainly the word modern in the more modern context means to be thinking about the future of this stuff. We were MMT people because we took operations seriously. Well, payment operations matter, too. And so if I can encourage MMTers to think of this as part of our oeuvre, then I think we’ll be in a good place as a movement.

[01:19:32.170] – Grumbine

Fantastic. What a great way to end it, folks. This is Steve Grumbine with Rohan Grey. My guest for Macro N Cheese. We’re outta here!

[01:19:46.550] – Andy Kennedy [End credits]

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate Macro N Cheese, please visit patreon.com/realprogressives.

Rohan Grey – Guest 

His research focuses on the legal design and regulation of money and finance, including digital fiat currency, as well as broader issues of law and political economy. He teaches Contracts, Business Organizations, and Securities Regulation.

Publications

Warren Mosler 

An American economist, hedge fund manager, politician, and entrepreneur. He is a co-founder of the Center for Full Employment And Price Stability at University of Missouri-Kansas City. and the founder of Mosler Automotive. 

Soft Currency Economics II

Michael Hudson 

An American economist, Professor of Economics at the University of Missouri–Kansas City and a researcher at the Levy Economics Institute at Bard College, former Wall Street analyst, political consultant, commentator and journalist. 

Website

John Henry 

An American economist. He was a professor of economics at Harvard University from 1921 to 1957. He was later appointed dean of the Graduate School of Public Administration at Harvard, and also served as Nathaniel Ropes Professor.

Alla Semenova

Origins of Money University PHD Thesis

Austrian Economics 

Austrians seek to understand the economy by examining the social ramifications of individual choice, an approach called methodological individualism. It differs from other schools of economic thought, which have focused on aggregate variables, equilibrium analysis and societal groups rather than individuals.

Cypherpunk

A cypherpunk is any individual advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change. Originally communicating through the Cypherpunks electronic mailing list, informal groups aimed to achieve privacy and security through proactive use of cryptography. Cypherpunks have been engaged in an active movement since at least the late 1980s.

Benjamin Geva 

Professor of Law at Osgoode Hall Law School in Toronto. He specializes in (domestic, comparative and international) commercial, financial and banking law, particularly in payment and credit instruments, fund transfers, electronic transferable transport documents, letters of credit, electronic banking, central banking, money & currency, digital currencies, and assets, and the regulation of the payment system.

Books

David Fox 

He holds the Chair of Common Law at the University of Edinburgh. He completed his undergraduate studies at the University of Otago in New Zealand and received his PhD degree from the University of Cambridge. Before coming to Edinburgh, he was for many years a Fellow of St John’s College in the University of Cambridge, where his teaching touched on most aspects of private law, concentrating on property, trusts, and monetary law. 

Publications 

MIT Digital Currency Lab 

Our mission is to create a future in which moving value across the Internet is as intuitive and efficient as moving information 

Website

CBDC – Central Bank Digital Currency 

Central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of that country’s fiat currency.

Philip Diehl 

An American businessman and former monetary policy advisor who served as the 35th director of the United States Mint. 

E-Cash Act 

The Electronic Currency and Secure Hardware Act. The ECASH Act would establish a pilot program within the U.S. Treasury Department to test and develop an electronic U.S. dollar.

Rashida Tlaib – US Representative from Michigan   

Website 

Stable Act

Stephen Lynch – US Representative from Massachusetts 

Website

Ayanna Pressley – US Representative from Massachusetts

Website

Greenbacks 

Emergency paper currency issued by the United States during the American Civil War that were printed in green on the back. They were in two forms: Demand Notes, issued in 1861–1862, and United States Notes, issued in 1862–1865. 

ECB – European Central Bank 

The prime component of the Eurosystem and the European System of Central Banks as well as one of seven institutions of the European Union.

Emma Goldman

An anarchist political activist and writer. She played a pivotal role in the development of anarchist political philosophy in North America and Europe in the first half of the 20th century. 

Eben Moglen 

an American legal scholar who is professor of law and legal history at Columbia University, and is the founder, Director-Counsel and Chairman of Software Freedom Law Center.

Software Freedom Law Center Publications

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