President-elect Trump’s nomination of Paul Atkins to chair the Securities and Exchange Commission (SEC) heralds a “new era for crypto,” according to industry insiders. For the first time ever, Bitcoin surpassed $100,000 in trading on the day of Atkins’ nomination, spurring the Federal Reserve Chair Jerome Powell to say of Bitcoin “It’s just like gold, only it’s virtual, it’s digital.”
The new era for crypto could not have come soon enough. America has always bet smart by betting on innovation. Yet President Biden’s administration, and SEC chair Gary Gensler in particular, spent four years betting on their own ability to crush the nascent industry in what the Blockchain Association describes as an “anti-crypto crusade.” Rules were left purposefully unclear and regulation came through enforcement action, stymieing the industry and even leading to the debanking of crypto business leaders. America’s approach has eerily resembled communist China’s, where the new technology has been centralized under the digital yuan (e-CNY) and social credit score system to reinforce social control.
This policy error will have global repercussions for American power if the United States fails to dominate the next frontier of financial innovation. The Chinese Communist Party (CCP) is all too willing to fill the vacuum of American financial innovation with its own infrastructure for global tyranny. In fact, China has already deployed its dystopian solutions at home.
Since the early 2010s China has invested significantly in its digital yuan, which is more than just a digital version of the renminbi, its national currency. The e-CNY is designed to centralize control over financial transactions and reshape payment infrastructures to the CCP’s advantage. The nature of the e-CNY would allow the CCP to maintain tight control over monetary policy and personal financial data, a stark contrast to the decentralized nature of private cryptocurrencies.
China's crypto ambitions extend far beyond its borders. The PRC is working to internationalize the e-CNY through projects like Project mBridge, a cross-border collaboration involving central banks from Hong Kong, Thailand, the UAE, Saudi Arabia, and-importantly-the Bank of International Settlements (BIS). The pilot, designed to test the digital infrastructure for massive international transfers between banks using CBDC was successful in transferring tens of millions of dollars. Such a system, if developed broadly would be an attractive alternative to current systems that are “costly, slow, and operationally complex—with ‘limited access and low transparency’” according to researchers at BIS.
The danger, of course, isn’t in replacing antiquated systems with new ones, but rather in control of that system resting in the hands of a totalitarian regime with designs on global primacy. If America fails to compete in this arena, China’s digital currency could potentially supplant the US dollar as the default currency of international trade, particularly if it is able to capture international monetary transfers related to oil. A global shift toward a CBDC controlled by China, would both weaken the effectiveness of America’s sanctions regime, so vital to the maintenance of the international rules-based order, and foster a global dependency on China.
We’ve seen the CCP’s strategy of promoting global dependencies at work before. Its Belt and Road Initiative nominally sought to connect the world to China through transportation infrastructure, but in practice created finance liabilities for “partners” who welcomed Chinese investment in port, road, and railway projects. China fostered digital dependencies across the globe through its 5G national champion, Huawei. Bolstered by CCP subsidies, it offered below market value wireless infrastructure to developing and developed nations alike. By insinuating itself in global infrastructure, both physical and digital, China created both economic and geostrategic leverage. If it were to establish the logic governing how digital currencies move around the world, the CCP’s influence would be irresistible.
The United States has a unique opportunity to counter China's moves by embracing policies that encourage the development of cryptocurrencies and blockchain technology. Following China's 2021 crackdown on private cryptocurrency, the United States – with its low energy costs and robust hosting capacity – has become the top destination for bitcoin miners. Stablecoins, which function more as a mode of exchange than an asset, may offer the best mechanism to preserve the primacy of the U.S. dollar around the world. Around 99% of stablecoins currently in circulation are backed by U.S. dollars.
Stablecoin’s blockchain and distributed data protects users from predation by China and governments in general, has added to its growing popularity, as has its speedy, low-cost transactions. The global preference for dollar-backed stablecoin is also strengthening the appeal of U.S. dollars, even as America’s liberal use of Treasury sanctions may be dampening global demand for dollar denominated traditional finance.
The race to lead in crypto is not just about technological innovation; it is about economic and geopolitical supremacy. The United States must recognize the strategic importance of leading in this domain and take decisive action to support the development of cryptocurrencies and blockchain technology by creating a regulatory environment that encourages innovation, while ensuring consumer protection and financial stability.
America has always looked to the future; our very founding was based on an optimistic pursuit of what might be, and we have ceaselessly iterated with innovation upon innovation. If we continue to build upon our rich tradition of innovation, the world will continue to say yes to the U.S. dollar and America’s pro-freedom leadership.
Michael Lucci is the Founder and CEO of State Armor, a non-profit advocating for policy solutions to the global threats posed by the America's adversaries.