The global competition for internet currencies
Digital currencies are proliferating, alongside technology breakthroughs in how value can be stored, transferred and used over the internet. Over the past two decades, the internet has swept through the world's systems of information, communications and commerce, and is now poised to transform our economic and financial systems, unlocking enormous economic value and growth.
The race is on for establishing the dominant currencies of the internet. Will the currency of the internet be the U.S. Dollar? China’s digital Yuan? Bitcoin? The implications are profound, hastening a reconfiguration of the international monetary system. This is an extraordinarily high-stakes competition that will shape the political and economic value systems of this century’s digitally-native global economy. Can the U.S. win the digital currency space race?
An open internet of value
Over the past decade, tens of thousands of entrepreneurs, computer scientists, mathematicians, legal and financial professionals, and other creators in nearly every country around the world have been working feverishly to build a new internet-native system of value exchange.
Building on digital currency and blockchain networks, this open internet of value follows in the path of the open internet of information, communications and commerce that has so deeply transformed the world. Open, global, transparent, interoperable, secure and decentralized.
Open-source technology, open standards and protocols, and private sector creativity have birthed new dollar digital currencies (a.k.a. stablecoins) that are at the forefront of this digital currency space race, are growing extraordinarily fast and offer the U.S. a rapid path to establishing the U.S. Dollar as the currency of the internet.
Today’s digital dollar ecosystem
By nearly every measure, the U.S. and the U.S. Dollar are already winning the digital currency space race. While U.S. policymakers consider ideas for government-administered digital currency, a prospect that will likely take many years to develop and pose significant risks and pitfalls, the market and open internet are racing ahead.
- USD Coin, or USDC, is a regulated, fully-reserved dollar digital currency that has grown rapidly, helping to create and enable a flourishing internet-native ecosystem built on digital dollars.
- Over 100 billion USDC issued, with over 50 billion in circulation as of January 31st, and 10,000% growth over 2 years (Source: Internal data aggregation)
- Nearly $2.5 trillion in on-blockchain payments and settlements in 2021, and 4.6 million active wallet addresses with USDC transactions in 2021 (Source: Internal data aggregation)
- 223 digital wallets available to users in over 175 countries supporting USDC transactions (Source: Apple App Store and Google Play Store combined)
- 34 leading exchanges available in 180+ countries supporting trading and converting USDC, providing liquidity and convertibility to key currency markets around the world (Source: Internal data aggregation)
- More than 200 blockchain protocols supporting USDC (Source: Internal data aggregation)
- Hundreds of regulated financial institutions (VASPs) in financial centers around the world supporting USDC (Source: Internal data aggregation)
With continued rapid growth, digital dollars are winning, and can become the preeminent format for currency on the internet.
The power of free markets and open innovation
One reaction to this flourishing ecosystem built on the open internet is to seek to heavily regulate and shut down free market activities, to nationalize the technology and infrastructure, and launch and administer government controlled digital currencies. Not surprisingly, this is the path of some regimes, who are racing ahead to establish their own vision for a government-run, internet-scale digital currency.
An alternative vision is one anchored in free markets and value systems such as openness, the preservation of privacy, free market competition and open intellectual property. Not only have these values helped America lead in internet technology standards and industries, they are, in fact, already the values at work that have led to the flourishing market for digital currency and blockchain technology today.
The pitfalls of central bank digital currency
For some, the only U.S. policy response for winning the digital currency space race is for the Fed to launch a centralized digital dollar. This would not only pose competitiveness and other risks to the U.S. banking and payment system, it would require the government to be in the business of picking technology winners and losers. Indeed, today, more than 90% of all electronic money is already privately issued.
Central bank digital currencies (CBDCs) also carry the specter of privacy erosion, making cyber threats and technology upgrades a taxpayer burden, rather than the motive of free-market drive, and well-regulated competition. Dollar digital currencies import and preserve U.S. monetary policy and competition among global payment systems, while keeping an air gap between the central bank, banks, payment companies and your wallet.
The presumption of privacy and guarding against deplatforming people from the lawful use of money is an important first principle that makes CBDCs a sub-optimal policy option in free societies — no matter how fierce the global competition may get.
A policy posture for dollar digital currency
U.S. policymakers are at a crossroads. It is a critical time to establish policies that ensure the Dollar becomes the most trusted and widely used currency on the internet. A non-partisan view appears to be emerging that the U.S. needs to lead in this space, and embrace and safely regulate an industry that has the potential to rapidly strengthen the U.S. role in the global digital economy.
This can be done while setting forth clear rules that address the many risks that exist with private digital currency technologies, including risks associated with the safety and liquidity of funds backing digital currencies, financial crimes and sanctions risks and fundamental market integrity risks. Clear regulations, with appropriate Federal licensing and supervision from the U.S. Department of Treasury, can enable the U.S. to continue competing in this strategic arena. The global economy is always on and our Dollar should follow suit.
The time is now
While China puts the e-CNY into the hands of a billion WeChat users, and seeks to export this approach globally, the U.S needs to act now and act decisively. Embrace the open internet and free market alternative. Establish clear and sound policies, and let American industry build and compete at internet-speed, winning the race to put the Dollar into the hands of every internet user in the world.