The U.S. Needs a Digital Currency
China is leaping ahead in numerous areas of technology, having made an enormous investment in the future of AI, producing hypersonic weaponry, and becoming a leader in scientific research. It is doing the same by producing a digital version of the yuan. The Chinese government understands that, eventually, the issuance of national digital currencies will become routine. That may be many years from now, but, consistent with Beijing’s modus operandi, it is looking decades ahead and positioning itself to be able to compete effectively in new arenas.
The U.S. government should be doing the same – not only vis-à-vis digital currencies, but in a host of other areas. While the U.S. is sleeping, China is in the process of securing what may be insurmountable leads in critical areas of technology. If the U.S. wants to maintain its overall technological lead and remain competitive in a host of areas, that needs to change.
Technocrats have rightly focused on the importance of addressing the legal, regulatory, and governance aspects of digital currencies up front. There are, admittedly, a lot of unknown unknowns at this juncture, but, in this decade, it will all be sorted out. The Libra Association is actually doing the world a great favor by boldly leading the charge in that regard. It is, and will continue to be, a painful process, but once the rules of the game have been established, it will be extremely well-positioned to proceed. The founding members of Libra understand that.
The same may be said about the countries that are moving in that direction. Australia, Canada, Israel, Russia, and Sweden are also among the countries that are currently seriously exploring the launch of national digital currencies. Japan and the UK are considering doing the same. They have an orientation to the future and some imagination about how transformative digital currencies will become. Given that the U.S. dollar is the world’s pre-eminent and reserve currency, and that its status is under increasing threat from the yuan, it is incumbent upon Washington to get serious about the idea.
Quite apart from the issue of competitiveness, national security is ultimately a core issue. If not properly managed, digital currencies could become a pathway for rogue states and terrorist organizations to bypass existing regulatory regimes. If there is no international regulatory body or meaningful way to regulate such currencies, those nations with digital currencies that are not party to such regulatory mechanisms could, in theory, support such rogue states or terrorist organizations or bypass such mechanisms entirely. Sanctions could be put in place against nations alleged to encourage illicit behavior, but proving such behavior will be far more difficult than doing so to address simple trade or investment violations, where well-worn mechanisms are in place and widely accepted.
That is another reason why it is so important for Washington to join the list of nations proceeding apace with the development of national digital currencies. If it fails to join them soon, the U.S. will miss an opportunity to be instrumental in developing the international governance landscape. And if it fails to develop a national digital currency at all, it risks falling dangerously far behind China and the other countries – perhaps too far to quickly catch up. Regrettably, the U.S. Congress remains too politicized and reactive (rather than proactive) in addressing some areas of critical importance to the U.S. economy and its security. Their failure to make this a legislative priority is a dereliction of duty.
If ever there was a case for the U.S. government to show some initiative, foresight, and proactivity, it is with the need to get serious about creating its own digital currency. China should be releasing its national digital currency later this year, and with it, the ability to claim leadership in yet another technological domain. Washington has the ability to get serious about producing its own digital currency – now – and get in the race in a meaningful way, or it can continue to sit on the sideline and watch Beijing sprint ahead of it.