The Need for the Digital Dollar
The United States cannot be on auto-pilot in regard to technological change and expect its global dominance to sustain.
What Should the United States Do?
In the past, U.S. hegemony endured because it withstood the test to renew itself and incorporate new technologies and innovations that reinforced an imbalance of global power in its favor. The United States was able to generate the buy-in dynamic of the rest of the world regardless of the novel nature of the economy. Its objective in digital monetary relations should be the same – meaning it should seek a policy environment in which other states in the system reinforce continued centrality as it introduces the e-dollar.
We endorse proposals made by the Roosevelt Institute to build efficient, inclusive monetary and financial systems, expand the emerging FedNow payment system, take on a serious study of a public option for banking offered by the U.S. Federal Reserve or Treasury Department, and regulate the stablecoin market. We view these as necessary tactical advancements. Yet, without a strategic framework guiding them, they will not reinforce the core element that itself reproduces American advantages.
The United States should as soon as possible explore the introduction of the e-dollar with a strategic objective to advance the principles that have supported the liberal economic order it created at the end of the Second World War. Rapidness is necessary so that it signals to the world that it is aware of the changing nature of the economy.
Second, it should strategically seek a public-private alignment for the future in which its big-tech retail companies such as Amazon, Google, Microsoft, Apple, and others, universally accept payments also in e-dollars. Subsequently, it should make efforts to other companies to follow suit.
Next, it should make clear that changes to the architecture of the e-dollar are likely to be made in the future—it should create an early regulatory oversight mechanism that is flexible and allows for adaptive change as clarity about fundamentals become clearer. As the digital economy evolves, so too will solutions for assuring the advancement of liberal democratic values such as privacy and transparency. The United States, if it seeks to continue to lead in the latter twenty-first century, must intentionally serve as the vanguard for introducing new digital financial instruments. This is why close cooperation with the fintech industry, think tanks, and other stakeholders is necessary along with cooperation with other liberal democratic currencies. Essentially, the United States should lead the development of e-financial markets.
Lastly, the United States should develop a network of bilateral relations with other states issuing CBDCs and design bilaterally tailored agreements that would include the determination of the exchange rate of their CBDCs, exchange of information and innovations, and other rules for joining the two e-financial markets. Such bilateral approaches will serve as confidence-building mechanisms and are easier to address than multilateral larger arrangements.
Change is coming. The potential for CBDCs must be regarded not as a technical extension of current economics, but as a resetting of some core fundamentals. The United States cannot be on auto-pilot and expect its global dominance to sustain. That will require strategic action that shapes the emergence of CBDCs. Ceding the initiative to others in this area is not simply about an economic transactional mechanism—it is about the centrality of American global power. A centrality that must be protected now.
Dr. Igor Kovac is Secretary at the Government Information Security Office of the Republic of Slovenia and a Research Affiliate at the Center for Cyber Strategy and Policy at the University of Cincinnati.
Professor Richard Harknett is Co-Director of the Ohio Cyber Range Institute.
The views expressed are the authors’ and do not represent any department or agency of the governments of the United States or Slovenia.