On Thursday April 23rd, 2015 the Bretton Woods Committee and the Institute for International Economic Policy at GW’s Elliot School of International Affairs co-hosted a seminar to consider the value proposition of digital currencies and payments and to discuss current and future regulatory implications. The program featured a diverse group of speakers including government regulatory agencies, banking institutions, financial intermediaries, and start-up entrepreneurs involved in the burgeoning cryptocurrency landscape. Overall, the speakers agreed that cryptocurrencies and the blockchain technology have massive disruptive potential for financial intermediary services and the future of the global payment system, but currently the industry is still in its embryonic phase. Continuing communication is necessary between the private and public sector in order to achieve the right regulatory mix as digital currencies and payments become more mainstream.

The first segment of the event was moderated by Paul Vigna, Wall Street Journal reporter and co-author of The Age of Cryptocurrency, a recently published book assessing how cryptocurrencies are challenging the global economic order. Jerry Brito, Executive Director of Coin Center, opened the discussion by highlighting the distinction between digital currencies and cryptocurrencies – the latter, a decentralized and encrypted digital currency that eliminates the need for third-party intermediaries to perform peer-to-peer transactions. The majority of the discussion evaluated the benefits and risks that cryptocurrencies such as Bitcoin bring to global markets, and all speakers agreed that the reduction of transactions costs was the primary advantage. As Ian Greenstreet, Chairman of Infinity Capital, argued, peer-to-peer lending eliminates the costs and time imposed by financial intermediaries and increases transaction transparency. Brito and Eric Piscini, Principal of Banking and Technology at Deloitte Consulting LLP, made a particular emphasis on this point explaining the benefits cryptocurrencies could offer to the unbanked (in developing and developed countries) by allowing marginalized consumers to engage in local and international commerce without a centralized authority charging service fees.

Audio for Panel 1: What is the Value Proposition (Benefits and Risks?)

Mark Williams, Boston University Executive-in-Residence and Master Lecturer, offered a skeptical perspective of cryptocurrencies, highlighting the still-clunky user interface of the blockchain technology the risks cryptocurrencies pose to macroeconomic and financial stability. He brought up the issue of credibility, spotlighting illegal and fraudulent activities – case in point, former Bitcoin Foundation CEO Charlie Shrem – that have plagued the industry and led to public mistrust of cryptocurrencies. Moreover, Williams posed the counterargument to cryptocurrencies’ ability to help the unbanked by explaining that lack of public trust creates high price volatility, which could severely impact micro-entrepreneurs if the value of their currency holdings fluctuates substantially from day-to-day. This difference of opinion among the speakers sparked a very interesting debate over the proper innovation-regulation mix of the nascent digital currency and payments industry.

The second panel was moderated by Michael Casey, senior columnist at the Wall-Street journal and co-author of The Age of Cryptocurrency, and focused on the regulatory framework of digital payments and currencies. Jennifer Shasky-Calvery, Director of FinCEN at the U.S. Treasury, kicked off the conversation by explaining the current state of regulation and emphasized the US Patriot Act AML/CFT as the key piece of legislation governing the industry thus far. She described the collaborative process in shaping the regulatory agenda, including the creation of U.S. and international regulatory advisory groups and input from the industry itself. John Beccia, General Counsel and CCO of Circle Internet Financial, offered an industry perspective and argued for more consistency and certainty in regulation across state and national jurisdictions. He stressed the need for a global regulatory baseline. Carol Van Cleef, Partner, Manatt Phelps & Phillips, echoed the sentiment for increased consistency and described the challenges companies face in navigating the “patchwork” regulatory framework and complying with distinctly different licensing laws in each U.S. state.

David Mills, Assistant Director of the Reserve Bank Operations and Payment Systems Division of the U.S. Federal Reserve, addressed the role of central banks in modernizing payments systems and described the objective of the U.S. Federal Reserve Board as providing safe and efficient payment systems. Mills expressed cautious optimism that cryptocurrencies offered as an alternative to the current system of payments, but concern about the risks that non-bank actors would bring into the financial system.. He pointed to Ripple, a Dollar-to-Euro encrypted foreign exchange network, as a positive example but argued that more research is needed before considering government integration.

Jason Weinstein, Partner, Steptoe & Johnson LLP, spoke to the advantages of blockchain technology in helping authorities tackle cybercrime and illegal activity. He pointed out that because cryptocurrencies are in fact borderless and transactions are recorded in the public domain indefinitely, law enforcement does not face traditional data custody challenges or need subpoenas or trans-border agreements when collecting evidence of criminal activity.

Audio for Panel 2: Rules of the Road - Regulatory Implications

We would like to extend our gratitude to Committee members Martin Apple and Danny Leipziger for their role in helping to conceptualize the program. We would also like to thank Jay Shambaugh and Kyle Renner of GW's IIEP for their assistance in co-hosting the program.