U.S. central bank digital currency coins
Illustration: Christopher T. Fong/Protocol

The battle for control of the digital dollar

Protocol Fintech

Hello and welcome to Protocol Fintech! This Friday: A tussle over the U.S. CBDC, career advice from a Plastiq exec, and the N26 CEO’s crypto regrets.

The digital-dollar dilemma

After months of delay, the Federal Reserve’s much-awaited report on a digital dollar could be out soon. Federal Reserve Chairman Jerome Powell told the Senate Banking Committee Tuesday that the white paper on a planned central bank digital currency is “ready to go,” possibly in weeks.

But don’t expect a detailed blueprint for an American CBDC. The white paper will be more of “an exercise in asking questions” about how the digital dollar should work, Powell said.

And there are plenty of questions. Some have already sparked a heated debate: How should consumers gain access to the digital dollar? And how much control should the Fed have?

Will a digital dollar lead to “digital authoritarianism”? That’s one of the biggest fears about a digital currency: a Big Brother future where the Fed has the power to track how people spend their money.

  • In proposing a bill that would bar the Fed from issuing digital currencies to individuals, Minnesota Rep. Tom Emmer warned against the rise of a digital dollar that could be “used as a surveillance tool” and forge an “insidious path akin to China’s digital authoritarianism.”
  • The warning comes as China prepares to dramatically expand the use of the digital yuan. It’s a big move that some experts warn would weaken the U.S. dollar’s global position, even as others caution against embracing Beijing’s highly centralized strategy.
  • The Chinese government plans to distribute the digital yuan to citizens. And its ability to keep track of users is “very scary,” analyst Martin Chorzempa told Protocol’s Zeyi Yang last year.

Should a digital dollar be solely a Fed project? This is the other big question the Fed will have to answer, especially as it wrestles with how to get digital dollars into the hands of citizens.

  • Emmer has a strong but questionably informed opinion on this issue, stressing in his proposal that the Fed “does not, and should not, have the authority to offer retail bank accounts.” This is something of a red herring: As best we know, no one’s proposing this. On the contrary, a CBDC allows electronic transactions without a bank account. There is, however, a roaring debate over whether CBDCs should be token-based, like cryptocurrencies, or account-based, as a simple digital record.
  • A “direct-to-retail” digital dollar would be “a significant departure from what the Fed has done historically,” said Klaros Group partner Jonah Crane.
  • The Fed could follow a different, less complicated path, he argued. A possible solution would be a “fully backed stablecoin offered by the private sector where the reserves are held at the central bank.” The Fed could thus “define the standards” for issuing digital dollars, he said.
  • There’s paper-money precedent for this, too: The Hong Kong Monetary Authority has long licensed three large banks to issue its banknotes.

Turning to existing stablecoins “may be the best option in the short run,” Crane told Protocol. Even Powell’s testimony suggests he may be open to it. Asked if there’s any reason why “well-regulated, privately issued stablecoins” would not be able to coexist with a digital dollar issued by the Fed, he said, “No, not at all.”

— Ben Pimentel (email | twitter)

Coming up

Calls for tech regulation — from lawmakers, regulators, small businesses, even consumers — have become deafening. It now seems almost certain that antitrust action, privacy laws and more will influence the industry in some form in a bid to undermine the most powerful companies in the world's most powerful industry.

Join us for our next Protocol Live event, "Tech regulation is coming. How does Big Tech respond?" on Jan. 26 at 10:30 a.m. PT/1:30 p.m. ET. Reserve your spot now.


As businesses grow during the pandemic, they also encounter pressing challenges to maintain that success. Among them is the pressure to strengthen their digital backbone, which leads to the question: How can companies find the ideal technology provider suited to their evolving needs?

Learn more

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The crypto-communists behind the Web3 revolution. The principles behind decentralized finance echo a decidedly Marxist vision of the future. Why aren’t we talking about this?

Checkout.com is worth $40 billion. It's one of the world's top 10 most valuable private companies now. The payments processor's customers include Netflix, Grab and Pizza Hut.

Sequoia and Paradigm bet $1.15 billion on Citadel Securities. It's the first outside investment for the market maker, whose customers include Robinhood.


“Should we have built trading and crypto instead of launching in the U.S.? In hindsight, it might have been a smart idea.” —N26 co-CEO Max Tayenthal, on the German neobank’s plans to launch crypto trading this year as it closes U.S. operations.

“My sense is it could make sense and also be something that could ultimately change the way we pay out entitlements as well saving us a ton in waste fraud and also in transaction costs.” Jared Kushner, in a recently uncovered 2019 email to then-Treasury Secretary Steven Mnuchin advocating for a U.S. digital currency.

3 questions with Stoyan Kenderov, chief product and technology officer at Plastiq

What fintech trend are you most excited about?

The mountain to climb in this next phase will be for small businesses to move every aspect of their back office to the digital world. Not only will SMBs need to connect all employees into automated workflows, but they’ll also have to implement a centralized place from [which] to orchestrate accounting reconciliation, customer data, vendor management and payments. Businesses will also have to embrace improved automated notifications, more real-time intelligence such as cash-flow prediction tools and smarter customer outreach.

What fintech trend is most troubling for you?

The promise of cryptocurrencies helping to transform expensive and monopolistic financial models is meeting increasingly unaffordable processing fees for crypto transactions. Layer 2 chains are not as secure, scalable or decentralized. Ethereum blockchain transactions have become too slow and expensive for large-scale applications, and layer 2 protocols are not trustworthy. It is threatening to turn the whole decentralized finance promise into a fad.

What's been your biggest professional blunder, and how did it help you?

My career evolved into a broader scope where I took on both marketing and business development roles. After that, no one wanted to hire me again in product leadership roles. But these detours made me a far better product leader, and I would urge anyone to "travel their career" as if new functions are different countries to visit before you settle in on the perfect role. It makes you a better craftsman and leader when you can bring diverse points of view and empathy for other business functions into your work.

Need to know

Coinbase will shut down for four weeklong breaks this year. Almost the whole company will take time to "recharge.”

Current launched 4% APY savings. The product is designed to beat traditional bank savings accounts, but there are some limits.

Coinbase bought a regulated derivatives exchange. The crypto exchange bought FairX in a move toward offering derivatives to retail and institutional customers.

Making moves

I2c named Senera Smith chief client officer.Smith was previously at FIS, Texas Capital Bank and RealPage. I2c provides card issuing and payment processing.

Doug Meads is the new head of Fintech at Envestnet | Yodlee. He was previously at Agent IQ and Rockall Technologies.

Girard Moussa is now head of UAE at Stripe. He was previously at Google, SAP and Microsoft.

Marcus Hughes joined BitMEX as chief risk officer. He was formerly managing director at Coinbase.

Martin White — the head of Litigation at Block, not the professor at the University of Sussex — is a co-founder of the Bitcoin Legal Defense Fund.

Deal flow

Global Processing Services raised $400 million. The U.K. payments firm’s round was backed by Temasek and others.

Arc raised $11 million for SaaS fintech products. The startup enables SaaS companies to borrow, save and spend.

Seashell raised $6 million for a 10% interest product. How is this possible? Hint: Crypto is involved.

Data point

97%: That’s the price drop in EthereumMax since June, when Kim Kardashian and Floyd Mayweather promoted the token. Burned buyers filed a class-action lawsuit against the celebrity backers.

Thanks for reading — see you Tuesday!

Correction: This story was updated to clarify a quote from Klaros Group partner Jonah Crane. A stablecoin backed by reserves held at the central bank is a possible solution, not a currently implemented one.

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