When the Soviet Union launched Sputnik into orbit in 1957, Western policymakers in the United States and elsewhere were shocked into recognising that they had fallen behind their archrival. Having been caught off guard, they rapidly mobilised a sweeping effort to catch up, in the process laying the foundation for GPS, Starlink broadband services, military communications, and many other technologies that keep today’s modern world humming.
Today, blockchain and digital assets hold the same transformational potential that satellite communications did for an earlier generation. Yet, despite calls for more US leadership in this area, including in US President Joe Biden’s own “crypto executive order” last year, the US is at risk of falling behind globally.
In the original space race, the US federal government led a nationwide campaign to invest in STEM (science, technology, engineering and math) education, created NASA, and eventually landed astronauts on the moon. In the end, winning the race also gave the US a dominant position in many key technology sectors. America succeeded because the government gave free enterprise and human ingenuity a common destination and a shared mission.
Today, those vying for an edge in digital currencies include both governments and private actors, some of which are openly hostile to the US and its allies. Currently, 114 countries (representing 95 per cent of global GDP) are considering whether to launch a central bank digital currency, and the ecosystem of cryptocurrencies and digital assets has exploded in size (and sometimes simply exploded) in recent years.
For its part, the Biden administration has fully committed to keeping the US at the forefront of technologies that bear on national security and future economic competitiveness.
The bipartisan CHIPS and Science Act of 2022 provides massive government investments to bolster domestic semiconductor manufacturing and research and development in quantum computing, artificial intelligence, and other fields. And for similar strategic reasons, the administration has also tightened export controls to prevent China from reaping the full military and economic advantages of American technology. As Biden’s national security adviser, Jake Sullivan, explained last year, the US intends to “maintain as large of a lead as possible” over its rivals.
Money is just as strategically important as semiconductors. It is no secret that the US dollar’s role as the world’s dominant reserve currency has long been a major source of America’s global power. The dollar matters not just because it is commonly used to settle international transactions, but also because it underpins a much broader rules-based system of payments, finance, and savings.
The White House has signaled that it understands what is at stake.
Last year’s executive order stressed that, “The United States has an interest in responsible financial innovation, expanding access to safe and affordable financial services, and reducing the cost of domestic and cross-border funds transfers and payments, including through the continued modernisation of public payment systems.” The goal, it continued, is to “reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets”.
Yet when it comes to digital assets, the Biden administration’s recent actions run counter to its stated objectives. In the past few months, aggressive SEC enforcement actions, warnings by the White House, and an entire chapter devoted to condemning digital assets in the Economic Report of the President threaten to turn the (largely self-inflicted) “crypto winter” into an ice age.
History suggests that these actions could be counterproductive. Such blunt enforcement tends to push market players to platforms with no oversight, opaque risk exposures, and histories of lax financial-risk controls. If this becomes a broader trend, we could end up with parallel global payment systems that will not be responsive to current compliance norms.
If the US botches digital-asset regulation, it could lose its edge in a sector with vast commercial potential and significant national-security implications. In an increasingly digital economy, America’s largely analog financial infrastructure is becoming outdated, plagued by high costs, frustrating delays, walled gardens that balkanise users, and acute vulnerabilities such as single points of failure.
Fortunately, responsibly administered blockchain-based technologies are already solving many of these problems, enabling millions of people at the bottom of the economic ladder to send, spend, and save hard-earned money with the same security, low cost, and speed as a text message.
In December, the United Nations Refugee Agency launched a pilot programme to deliver universally portable digital cash assistance to Ukrainian war refugees. This was just one demonstration of how humanitarian assistance can be scaled up through near-instant, mobile, traceable, corruption-resistant payment systems.
Meanwhile, in countries where inflation is running rampant, people are turning to trusted digital dollars as a store of value. Millions of migrant workers are sending paychecks home without incurring the costs of exorbitant remittance fees, and companies are increasingly recognizing the benefits of blockchain technology to improve supply chains.
The US should want to scale up these efforts to ensure that the future of money, payments, philanthropy and commerce remains anchored in dollars. Congress should step in to provide a constructive legal and regulatory framework for the digital-asset industry, starting with legislation on payment stablecoins. The good news is that the House Financial Services Committee has just released draft legislation that would codify important standards for reserves, transparency, and interoperability. These are vital consumer protections. Stablecoins should be America’s answer to the electronic-money and digital-asset frameworks emerging around the world.
The US has traditionally met strategic challenges by harnessing the unique strengths of public and private sectors. Ongoing efforts at de-dollarisation, the development of parallel payment systems, and the rising global demand for universally accessible money are all features of one of the key economic challenges we face. How the digital-currency race is won will be just as important as who wins it. By creating conditions that keep the nascent blockchain and digital-asset industries onshore, the US can stay well ahead of the pack.
Dante Alighieri Disparte is the chief strategy officer and Head of Global Policy at Circle. Copyright: Project Syndicate, 2023.
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