Inching our way toward the digital future

Last week, the Depository Trust & Clearing Corp., better known as the DTCC, announced that it successfully ran a live pilot of its new blockchain-based trade-settlement system. The company and a bunch of banks and financial services — JPMorganChase, BlackRock, Goldman Sachs, Societe Generale, State Street, Nasdaq and the NYSE — took part, along with tech companies including Microsoft and fintechs such as Circle and Chainlink.

The DTCC, if you don't happen to know, is the central repository for stock certificates; it processed $4.7 quadrillion worth of trades last year and custodies $114 trillion worth of securities. When an investor sells a stock, they don't take the certificate out of a vault and have a messenger ferry it across town to the buyer (the system that led to the "paperwork crisis" of the '60s that actually led to the creation of the DTCC.)  The buyer and seller's brokers handle the deal, settle all the details, and record the transaction on their own books. The DTCC has the actual stock certificates. All of them, for every publicly traded company. The new system that was tested created a digital record of those securities held at the DTCC, and traded them. I'm simplifying it quite a bit, but that is the gist of it.

On the one hand, that is very interesting. The future! Tokenized, digitized, bona fide modern trading. On the other hand, it's a little bit astounding that this technology has been around now for nearly two decades and Wall Street is  just getting to the point where large scale pilots are being run. And it's really only half a system. The securities may exist in digital form, but the actual money exchanged is still analog. Electronic, maybe. But not digital. They didn't use a digital currency. Does that matter? It might, if there were a digital currency that could possibly fill the role, but there isn't.

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But the technology for that exists, too. Just not here in the U.S. In Brazil, the government-run Pix payments network has been running for only six years and is actively used by more than 80% of the population. With Pix, people or businesses can settle transactions in under 10 seconds at virtually no cost. It has completely revolutionized payments in Brazil, by far outpacing the use of cash or credit and debit cards. Pix isn't a currency per se, but it serves the same purpose as one. Meanwhile, across the pond the European Central Bank is picking partners, including Deutsche Bank and UniCredit, for its trial of a digital euro. The ECB is planning the trial for next year, with a launch eyed for 2029 (assuming everything goes as planned). And in Africa, the payments networks are skipping right over credit and debit cards and going straight to digital. 

Those three regions comprise a population of more than 2 billion people, just in case you're counting.

And what has been the U.S. response to all this? Well, there is FedNow, but I've never seen it at a checkout counter. Our strategy seems to be to back a bunch of wildcat stablecoins that nobody outside crypto traders use, to literally outlaw the creation of a digital version of the U.S. dollar, and most recently to impose a 25% tariff on Brazil for, among other alleged slights, championing the domestic use of Pix. Congress's recently passed housing bill rather randomly included a provision banning the Fed from making a digital dollar until 2030. The ban is probably unnecessary — it's not like anybody inside the Fed's been pushing to digitize the national currency anyway.

If the U.S. had a real Pix-equivalent, then the DTCC really could be completely digitized. Securities trading could be executed and settled in seconds, virtually in real time. Various crypto-based outfits have been trying to build this for years, but none of them had the critical mass of an outfit such as the DTCC. And it goes without saying that none of them have remotely the critical mass that the Federal Reserve has. But it seems like for now, all we're going to get in the States are these wildcat stablecoins, none of which could at all meet the demand of the world's largest economy, to say nothing of the whole global economy. 

It's not a new idea, not really. 150 years ago — at a time when European powers had been at each others' throats for centuries — a French politician named Felix Esquirou de Parieu conceived of a global currency that could help break down barriers between nations and he hoped be part of the development of a peaceful confederation of nations. He didn't get his global currency, though his ideas did lead to the Latin Monetary Union and later the birth of a pan-European currency, the euro. A truly global, digital currency could have far more value than just instant, frictionless settlement.  It can be a sort of cultural glue.

One way or another, this is all coming. Like King Canute, we can't fight the tide. It would be better to get on board now rather than wait until the rest of the world does it for us.