The imminent commencement of the 15th BRICS summit in South Africa has unveiled prospects of a joint currency venture among Brazil, Russia, India, China, South Africa, and potentially more participants. This collaborative currency, potentially backed by tangible commodities like gold, coincides with the already launched central bank digital currencies (CBDCs) in 10 countries, including China. The ramifications of these developments extend to national security, the preeminence of the U.S. dollar, the evasion of sanctions, economic competitiveness, and individual privacy.
Four years ago, a clarion call was sounded for the exploration of a U.S. Central Bank Digital Currency (CBDC)—a “digital dollar.” This rallying cry underscored the risk of eroding the dollar’s pivotal role in global trade and the circumvention of sanctions as foreign nations adopt digital currencies operating beyond the confines of a U.S.-led world currency framework. This imperative prompted the rallying of top intellects to safeguard the dollar’s relevance in an era of digital interconnectedness, all the while remaining aligned with American norms and values. Though progress has been achieved through public and private sector initiatives, a more concerted and astute approach is demanded, fueled by bipartisan unity.
Recent reports by the Atlantic Council indicate that 130 countries are currently probing CBDCs, up from 35 in 2020. The Bank for International Settlements’ survey forecasts the potential existence of 15 retail CBDCs and nine wholesale CBDCs by 2030. These could fundamentally alter the landscape by establishing alternative international payment systems and currency settlement frameworks that bypass the dollar and its underlying infrastructure.
Among the G7 nations, the U.S. lags behind in CBDC exploration, particularly in the realm of retail use. However, the past four years have furnished valuable insights into how the U.S. can safeguard the dollar’s role in an increasingly digital future. This preservation must harmonize with core democratic values such as free markets and individual privacy. Certain key considerations, particularly pertaining to privacy, warrant attention and must be addressed through thoughtful policy discussions and strategic design choices. Here are pivotal insights that can steer the U.S. in the upcoming phase of digital dollar exploration.
1. Safeguarding Stability through Accessibility to Central Bank-Backed Money:
The pivotal role of central bank-backed public money in supporting and stabilizing private money forms, including bank deposits, cannot be overstated. In times of crisis, the confidence in commercial bank deposits is bolstered by the assurance that they can be exchanged for government-backed physical currency via central banks. In the forthcoming era marked by dwindling cash usage, the importance of offering public money in digital form becomes evident. This aids the stability of non-public digital money variants like stablecoins and commercial bank deposits.
2. Collaboration with the Private Sector for Optimal Digital Money Benefits:
Acknowledging the immense potential of private sector payment technologies and partnerships is essential. The U.S. private sector has been at the forefront of decentralized finance, digital wallets, smart contracts, stablecoins, and digital payment innovations. Collaborative efforts between the government and these innovators, along with other private sector entities like well-governed payment providers, banks, software developers, and fintechs, can yield a broadly interoperable digital dollar system aligned with future networks.
3. Designing for Privacy and Resilience:
A unique facet and competitive advantage of the digital dollar should be its robust design for individual economic privacy and censorship resistance. This presents an opportunity to reconsider and enhance privacy in the face of the growing risks posed by centralized platforms. With meticulous design, the digital dollar can operate on transparent systems while assuring technical functionality, security, and protection against unauthorized surveillance and data exploitation, whether by governments or commercial entities.
This design philosophy can flourish if the U.S. commits to embracing innovative digital technologies and regulatory paradigms that align with legitimate national security and law enforcement objectives. This is exemplified by privacy-enhancing technologies such as zero-knowledge proofs, homomorphic encryption, and multi-party computation, which maintain privacy while aiding law enforcement. By embedding individual economic privacy within its framework, the digital dollar can serve as a desired instrument for individuals seeking financial autonomy and inclusion while upholding human rights and democratic values.
J. Christopher Giancarlo, senior counsel at international law firm Willkie Farr & Gallagher and the 13th chairman of the Commodity Futures Trading Commission, co-founded the Digital Dollar Project. Daniel Gorfine, co-founder of the Digital Dollar Project, serves as CEO of Gattaca Horizons LLC, former chief innovation officer of the CFTC, and adjunct professor at the Georgetown University Law Center. Opinions expressed in Fortune.com commentary pieces are solely those of the authors and do not necessarily reflect the beliefs of Fortune.
