Dan Tapiero on the inevitability of central bank digital currencies

Dan Tapiero, founder, CEO, CIO and managing partner of 1RoundTable Partners & 10T Holdings, joined Opto Sessions last week to discuss all things blockchain, including the prospect of central bank digital currencies. While some investors see these as a negative development, Tapiero views them as part of a “natural progression” of the digital asset ecosystem.

Central banks are gearing up towards issuing their own digital currencies. At the end of May, the Central Bank of Brazil selected 14 partner institutions to pilot its central bank digital currency (CBDC), while China and India are also undertaking their own trials. 

However, advocates of decentralised finance (de-fi) fear the implications of CBDCs. Making the case for the value of bitcoin on a recent episode of Opto Sessions, Michael Venuto explained how CBDCs could be used “as a weapon against you” by governments seeking to centralise control.

This week, Dan Tapiero shared his rounded perspective on CBDCs, and why he believes their coming is inevitable.

The macro background

As with most positions on digital currencies, the starting point for Tapiero’s views on CBDCs is the macroeconomic environment.

“The Fed has overtightened,” says Tapiero. The yield curve inversion is evidence for this, and in Tapiero’s view, the Fed’s approach calls into question a potentially backwards approach to managing economic cycles. “Putting people out of work as a way to control the CPI number just seems like a 20th-century kind of policy structure.” 

Without adhering to the narrative that the dollar is in the process of losing its reserve currency status, Tapiero does feel that the Fed’s overtightening runs the risk of damaging its credibility over the long term and that this could lead to a “rethinking” of how the macroeconomic cycle is managed. In particular, he calls for greater participation of “market people” in the Fed’s operations, as opposed to the “bureaucrats, economists or academics” that currently make up the Federal Open Market Committee (FOMC).  

Institutional change 

These kinds of dynamics might one day lead to structural institutional change, but getting there won’t be easy. However, Tapiero says, he can envisage a scenario over the coming years in which younger decision-makers take charge, bringing with them a better understanding of how stablecoins work.

“That would be a wonderful opportunity to cement the dollar’s position globally,” says Tapiero. “If the US authorities actually understood that, along with bitcoin and Ethereum the dollar could be at the centre of the digital space, by encouraging the growth of dollar stablecoins, it almost wouldn’t matter what the Fed was doing.”

Indeed, the risk at the moment is that other nations might be exploiting this opportunity while the US is not.

“Maybe there are other currencies that see the digital world as the future, and maybe they start to encourage and grow the stablecoin business with their currency as a backing,” Tapiero says, implying that the dollar could be left out in the cold in a new global financial ecosystem. “Right now, the US is going the other way.”

From a certain perspective, though, the dollar has already lost its primacy. “The reality is, the dollar is down 99.9% against bitcoin over the last 12 years… All of your assets, if you’d bought the S&P 500, if you’d bought any asset in the world, are down 99% against bitcoin.”

The “natural progression”

As for central banks creating their own currencies, Tapiero is emphatic. “They’ll definitely exist,” he says.

However, Tapiero is more measured on this development than Venuto, although he picks up on the same overall point: consumers will want access to a currency outside the centralised financial system. He describes a CBDC as an offshoot of a stablecoin, backed by a country’s currency and managed by its central bank.

“They’ll definitely exist.”

“There’s nothing wrong with that,” he says. “You also have the option to opt out of that, and own Bitcoin, Ethereum and dollar, or whatever it is that you want to own… Let the central banks do their CBDC, and people will either invest in it or not.”

The main question for Tapiero is the use case – whether any given digital currency will be primarily used for transactions or savings. Comparing Bitcoin and Ethereum, he points out that the former is better suited to savings and as a store of value, while Ethereum is better suited as “programmable money”. Bitcoin’s security makes it a slow option for everyday transfers; over time, he feels, new blockchains will arise for specific purposes, and CBDCs have their own place within that field.

“I see this whole big world of value,” he says. “Central bank digital currencies have a place, but remember, we have the option not to put our savings in those.

“So that, to me, is not such a horrible thing. I know people are panicked and worried about central bank digital currencies, but I think it’s just the natural progression.”