The stage is set for the 2022 Beijing Winter Olympics. One year from now, athletes and spectators will pour in from all over the globe. It will be the world’s coming-out party after two years of isolation. China plans to capitalize on the moment.
As Olympians and tourists go to make their first purchases, they are likely to be surprised by the guidance issued by the Chinese government: “All payments must be made through the use of digital currency—use it here and take it home.” All customers will retain a balance in yuan, but have prices displayed in dollars, making it a comfortable transition. It’s convenient, futuristic, and most of all, it will be a statement about China’s leadership in financial technology.
We need a Digital Dollar to compete on a level playing field and right now we are far behind. The People’s Bank of China is currently operating pilot projects of the digital yuan in major cities across the country. Reports suggest demand is through the roof. The coronavirus has accelerated the new era of money and the rise of Central Bank Digital Currencies (CBDCs).
In the next few months, the Joe Biden administration and key private sector digital payment companies will need to commit to collaboration on a project to build out the Digital Dollar. They will need to work with allies to ensure Digital Euros, Digital Pounds, and Digital Yen are all put on accelerated tracks. Here’s how they can compete in the race for the future of money:
1. Set the Course. Issue Office of Management and Budget (OMB) and National Security Council (NSC) guidance on why maintaining an advantage on digital currencies is a national security priority. Although it was overlooked in the new interim guidance issues last month, this can be done by outlining the purposes of the Digital Dollar and exploring the potential risks of a Digital Yuan in the next full National Security Strategy due later this year. While the Chinese government is hoping to scrape data from domestic transactions, perform domestic surveillance on its citizens, and maintain expanding control over internal institutions, the structure of a Digital Dollar system will be fundamentally different. In contrast to the Digital Yuan, it should be targeted at increasing financial inclusion, speed of service, and global competitiveness for democratic regimes in the financial technology sphere.
2. Stakeholders. After setting the objectives and guidance for the project, the designated interagency process will need to seek federal government and key private sector stakeholder consultation on privacy and civil liberties. As with any discussion about the implementation of a new technology in a democratic country, the enduring topics of privacy and civil liberties will be at the heart of the effort. Partnerships between NGOs and the designated task force will be central in these debates to ensure a democratic procedure of developing standards for Digital Dollar use. In addition to privacy concerns, there will also need to be substantial cooperation between stakeholders that understand the intricacies of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). This work can be done with select groups in the U.S. Department of Treasury, the Financial Action Task Force (FATF), and other AML/CFT groups.
3. Partner with Other Leading Democratic States. After developing the basic theoretical and technical framework for the Digital Dollar, the U.S. should use its traditional leadership role in innovation to partner with other democratic states to provide a substantial alternative to what China is offering. This work should be highlighted by a twenty-first-century Digital Bretton Woods convening. Working group conversations between Chairman Jerome Powell, Christine Lagarde, and Janet Yellen—some which are already happening at the staff level—will help advance interwoven strategies for developing the Digital Dollar alongside the Digital Euro. Washington officials should also collaborate with our long-time transatlantic partners in the United Kingdom to develop a similar framework for the Digital Pound. The newly reenergized Quad—Japan, Australia, and India—will welcome an alternative to the growing regional influence of the digital yuan.
4. Educate the Public. While a CBDC is similar to digital transactions today, many U.S. citizens will be initially skeptical of using money issued directly from the Federal Reserve. By juxtaposing the differences in the U.S. system that will emphasize privacy and ease of use (think stimulus checks direct to your phone two hours after a bill is signed) stakeholders can gain the trust of the general public. This can be done through a series of partnerships with private actors that publicly vouch for the new technology, as well as an open-source training program that is required for U.S. citizens with an account. Since every U.S. citizen will have access to a Digital Dollar account, the training can be implemented and run as soon as it is opened for the first time.
5. Rollout Before the End of 2022. As with any project, there needs to be a timeline. Success in competition relies on adding pressure, goals, and guidelines for success. Americans have always thrived when competing in the technical space and this time will be no different. To have a significant answer for the Digital Yuan at the 2022 Olympics, the United States needs to launch its program now. Having a viable system—and a counter to China—by the end of 2022 is a real possibility if public-private sector cooperation starts today.
Michael B. Greenwald is Director at Tiedemann Advisors. He is a fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs and a Senior Fellow at the Atlantic Council Geoeconomics Center. From 2015-2017, Greenwald served as the first U.S. Treasury attaché to Qatar and Kuwait.
Josh Lipsky is the Director of the Atlantic Council’s Geoeconomics Center. He previously served as a Senior Advisor at the International Monetary Fund (IMF).