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The writer is an FT contributing editor
Every August, at the Jackson Lake Lodge in Grand Teton National Park, Wyoming, the chairperson of the Federal Reserve traditionally takes a stroll. Informed of this, photographers from wire services gather, and the chairperson steps onto a terrace with two or three important individuals – possibly governors or presidents from the Federal Reserve System, or even heads of foreign central banks. Mount Moran always provides a picturesque backdrop.
This photo opportunity serves as a performance. The chairperson and other members of the global financial system converse, often with smiles, occasionally gesturing towards the Tetons. The aim is to convey stability and consensus, emphasizing that central bankers in the global dollar system have both a script and a rapport.
It is once again time for Jackson Hole, and there will likely be photos of Jay Powell and a few colleagues. If you see them, ponder why anyone would willingly become a central banker.
At the end of every white paper for each new digital monetary project – and there is always a white paper – there is a section dedicated to “governance”. In simplified terms, this refers to the entity in charge. Historically, this has been the most crucial aspect of any monetary system.
These white papers presume that the existing system is flawed because those individuals gesturing towards Mount Moran in the photograph are doing it incorrectly. The argument made is that a better governance model could be built from scratch if given the opportunity to restart. This would involve a superior method of selecting decision-makers for monetary matters.
This assumption contains a disqualifying flaw: mankind has already experimented with every conceivable way of making decisions about money. While their attempts have often been suboptimal, there is no foolproof method. Ensuring the value of a money supply and determining its distribution are inherently challenging problems that can only be solved through unsatisfactory compromises.
Consider Worldcoin, a new monetary project created by a group of entrepreneurs, including the CEO of OpenAI. The coin relies on a novel system called World ID, which utilizes biometric iris scans to grant each participant a unique identity. The white paper for Worldcoin, like those for other new coins, promises to onboard individuals into the financial system. According to the paper, providing proof of identity will facilitate the creation of financial networks to connect people.
However, identity has never been the principal obstacle. Basic financial services such as savings accounts, small loans, and small-scale transfers are notoriously unprofitable. The challenge lies not in the absence of iris scanners, but rather in the lack of motivation. Private companies have no incentive to engage in such endeavors, leaving it to the jurisdiction of governments. It is an outcome of effective governance.
Worldcoin’s white paper reveals that the current governance structure involves three officers from an advisory firm in the Cayman Islands who receive instructions on Worldcoin from a company registered in the British Virgin Islands, which in turn is wholly owned by a foundation registered in the Cayman Islands.
To their credit, the founders of Worldcoin recognize that the current governance structure is less than ideal. They plan to transition control of the foundation to a DAO (decentralized autonomous organization) as soon as possible. A DAO is a group of people who make decisions through voting. In contrast to other DAOs that count votes based on coin holdings, this particular DAO will count votes through iris scans, allowing each human in the community a single vote.
The founders acknowledge that this DAO presents “perhaps the most formidable challenge of the entire project”. And rightly so. It is incredibly challenging to convince a large number of people to vote on the best allocation of resources. The Worldcoin founders contend that unique proof of humanity will enable small communities to make better collective decisions about money, as each member will possess a single vote. However, we already have a system for this known as “democracy”. It is far from perfect.
This criticism is not directed solely at DAOs; it is a criticism of human nature. The United States, in a way, functions as a DAO where governance is based on the Constitution’s one-person, one-vote principle. Through votes exercised within the framework of the Constitution, the American DAO arrived at a compromise between bankers responsible for the money supply and citizens seeking a degree of control and stability. This compromise gave rise to 12 regional banks that regularly vote on monetary matters, overseen by a board of governors appointed by an elected president.
This system has well-known flaws, but envisioning a brand-new DAO overcoming the fundamental challenges of money in an elegant manner is difficult. Anything valuable attracts power, and governing power with votes is a complex task. If the founders of Worldcoin desire their DAO to direct their company by instructing their advisory firm to make wise decisions, they will find themselves in the same arduous position as Powell and his counterparts. Meetings. Poses. Uncomfortable consensus behind closed doors. Deciding on a path, even if it inevitably leaves most individuals at least somewhat dissatisfied.
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