The writer is an FT contributing editor
In August at the Jackson Lake Lodge in Grand Teton National Park in Wyoming, the chair of the Federal Reserve usually takes a walk. Someone at the Fed alerts the photographers at the wire services, and the chair steps out on to a terrace, accompanied by two or three important people — sometimes governors or presidents of the Federal Reserve System, sometimes the heads of foreign central banks. Behind them, always, is Mount Moran.
This photo call functions as a performance. The chair and the other members of a global financial system talk, often smile, sometimes gesture at the Tetons. The intended signal is stability and consensus, that the central bankers in the global dollar system have both a script and a rapport.
It is Jackson Hole time again, and there will probably be photos, again, of Jay Powell and a few colleagues. If you see them, ask yourself: why would anyone volunteer to be a central banker?
At the bottom of every white paper for every new digital monetary project — there’s always a white paper — there’s a section labelled “governance”. This is white-paper speak for “who is in charge”. It is the only thing that has ever mattered in any monetary system, ever.
These white papers assume that the system, as it is, is flawed because the people in that photograph gesturing towards Mount Moran are doing it wrong. If we could start from scratch, the papers argue, we could build a better governance model — a better way of picking who gets to make decisions about money.
This assumption contains a disqualifying flaw: humans have already tried all the possible ways of making decisions about money. They have often done it poorly, but there is no way to do it right. Guaranteeing the value of a money supply and deciding who gets how much of it — these are inherently difficult problems, solved only with unsatisfying compromises.
Take for example Worldcoin, a new monetary project from a group of entrepreneurs, including the chief executive of OpenAI. The coin relies on a new system, World ID, that will use biometric iris scans to guarantee everyone who participates a unique identity. The white paper for Worldcoin promises, as white papers for new coins often do, to bring people into the financial system. Give people proof of identity, and it will be possible to build financial networks to connect them.
But identity has never been the barrier. Basic financial services — savings accounts, small loans, small-scale transfers — are a terrible business. The challenge in bringing people into the financial system isn’t a lack of iris scanners, but a lack of will. For private companies, it’s a money loser. That kind of work is left to states. It’s a product of good governance.
Worldcoin’s white paper says that it is currently governed by three officers of an advisory firm in the Cayman Islands, bound to take instructions on Worldcoin from a company registered in the British Virgin Islands, in turn wholly owned by a foundation, registered in the Cayman Islands.
To their credit, the founders of Worldcoin have recognised that the current governance structure is less than ideal. They plan, as soon as they can, to transfer control of the foundation to a DAO — a decentralised autonomous organisation, a group of people who make decisions together by voting. Unlike other DAOs, which count votes by coin holdings, this one will tally votes by the iris scan — one for each human in the community.
That DAO, the founders point out, is “perhaps the most formidable challenge of the entire project”. Well, yeah. It is really, really difficult to get a lot of people to vote on how best to allocate money. The Worldcoin founders argue that unique proof of human-ness will allow small communities to make better decisions about money together, because each member of each community will have a single vote. But we already have that system for money. We call it “democracy”. It’s the worst.
This is not a criticism of DAOs, necessarily. It is a criticism of humans. The US is a kind of DAO, with a one-person, one-vote governance contract called the Constitution. Through votes under that Constitution, the American DAO chose a compromise between the bankers who produced money and citizens who wanted some control and stability: 12 regional banks that vote regularly on money with a board of governors appointed by a president, elected by the DAO.
This system has a number of well-known flaws but it’s hard to imagine a brand-new DAO will leap, elegantly, over the basic problems of money. Anything of value attracts power, and power is difficult to govern with votes. The founders of Worldcoin, if they want to get their DAO to instruct their company to instruct their advisory firm to make good choices, will find themselves in the same awful position of Powell and whoever is standing next to him this year. Meeting. Posing. Finding an uncomfortable consensus behind closed doors. Choosing a path, even if it inevitably leaves almost everyone at least a little unhappy.