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The writer is senior counsel at Willkie Farr & Gallagher, co-founder of the Digital Dollar Project and former chair of the US Commodity Futures Trading Commission
The US Senate last week advanced a major cryptocurrency regulation bill called the Genius Act on a bipartisan vote. It is an effort to establish the first regulatory framework for issuers of stablecoins — digital tokens pegged to fiat currencies such as the US dollar.
This bill is important because the US dollar remains the world’s premier instrument for payments and trade across a wide range of interconnected global infrastructures and networks. It is perhaps the most extensive network in human history. And it promotes the enduring virtues of free enterprise and economic expression against both government and commercial censorship, and control.
Yet while today’s US dollar network is peerless, the technology on which the network operates is quickly approaching obsolescence. Moving value through the network relies on outdated 20th-century practices and technology: exclusive, expensive and slow.
It also faces competition from new digital networks. The Brics nations, for example, composed of Brazil, Russia, India, China and South Africa, are working towards reducing dependence on the dollar in favour of a new digital currency.
Hence the popularity of dollar-backed stablecoins, essentially faster, more efficient overlays of the dollar network itself. Think of hyperlink, hyper-speed trains hurtling alongside slow, belching diesel engines.
As we move into the second quarter of the 21st century, it is increasingly clear that money (and other forms of value from government debt to automobile titles) will be recorded and transferred though a variety of digital network instruments, including bank-operated tokenised deposits, commercially-operated stablecoins, and sovereign-operated central bank digital currencies, or “CBDCs”.
It is therefore time for the US to address three simple but hard questions: how to future-proof the dollar for a world of competing digital networks, how to maintain the dollar’s world reserve currency status and, perhaps most importantly, how to preserve the universal values for which the dollar has historically stood.
Designed properly, digital instruments based on the dollar and other democratic currencies should run on systems that are operationally transparent, providing independent assurance about technical function and security. They should also reflect democratic values of freedom from unwarranted surveillance, censorship and control by both governments and commercial firms.
Thirty years ago, the first wave of the internet rolled across the globe. Leaders in the US and allied democracies made sure that the internet we use today reflects the values of open and free societies rather than closed and repressive ones.
In that remarkable effort, the public sector and the private sector worked together to set global standards and create key governing institutions: the Internet Society, the Internet Corporation for Assigned Names and Numbers, and others. The results have been transformational both economically and socially, not only for the US but also for the free world.
Today, we are in the middle of a new era that is similarly unstoppable and inevitable: an internet of value. We must once again work together to ensure that the dollar and other digital currency networks are on the cutting edge of speed, reliability, accessibility and inclusion.
The US Genius Act is an important step forward in dollar modernisation. But American policymakers should go even further and make sure that digital dollars reflect the virtues of free enterprise and economic expression.
If we get the digital technology carrots right, we won’t need sticks to preserve democratic digital instruments. If we get the values right, the value of the dollar will be sustained for decades to come.