Technological innovation has always been a vibrant thread in the tapestry of human progress, varying in scale and nature but consistently transformative. Over the past century, we’ve witnessed everything from subtle, iterative enhancements to the emergence of groundbreaking technologies that have taken the world by storm. Regardless of the nature of their entrance into the market, these iterations consistently redefine our ways of thinking, interacting, and existing in the world.
The latest wave of technical innovation has been particularly prominent in the financial sector, marked by the emergence of blockchain and tokenization. Cryptocurrencies led the charge, sparking a paradigm shift in the concept of money. Since these early developments, digital transformations, both big and small, have spurred a broader movement towards faster, more efficient, and diverse payment systems. Within the context of our advancing digital economy, these new features are quickly becoming norms in how we utilize and understand money.
However, along with their promise comes a significant responsibility to have foresight on their implications for privacy, human rights, cybersecurity, digital financial inclusion, and cross-border interoperability. This leads to a crucial question: What are the foundational principles and benchmarks driving innovation choices, and what implications could these hold for the generations to come? To explore this question and broader global trends, the Digital Dollar Project, in collaboration with the Atlantic Council GeoEconomics Center, hosted a first-of-its-kind global convening, “Exploring Central Bank Digital Currency: Evaluating Challenges & Developing International Standards” in 2023. This event brought together international policymakers, technologists, financial services providers, innovators, and consumer and privacy advocates. It served as a strategic global conversation on the evolving digital landscape, opening discussions on the guiding principles and standards to hold at the forefront of development. The global convening prompted us to look beyond point-in-time technology and policy decisions and anchor ourselves in the values we are moving towards as a society.
Throughout the convening, panelists and attendees shared insights from global developments and offered advice for the forthcoming year of innovations. As we move into 2024, the Digital Dollar Project summarizes the discussions and puts those words into action through three main points:
We cannot afford to be complacent.
In the rapidly evolving landscape of global finance, the urgency for active engagement and exploration of financial innovations cannot be overstated. The November 2023 global convening brought this into sharp focus through panel discussions that spanned the historical evolution of our financial systems (how we arrived here), the context of the current state of affairs, and the future direction (our trajectory and rationale). Each discussion reflected on global experiences over the past four years, ranging from the pandemic crisis that spurred rapid prototyping for distributing citizen relief, to broader movements in decentralized finance and autonomous systems, to the current focus on enhancing scalability through interoperable networks. As highlighted on stage, we have observed numerous instances of immediately applicable innovation along an innovation timeline that extends far into the future. From a historical perspective, we are predictably on course for global, systemic, human-centric change.
To provide a status update, as of January 2024, over one hundred countries around the world are exploring a central bank digital currency (CBDC); the European Central Bank has announced a development and deployment plan for the Digital Euro within the next few years; there are approximately two hundred globally distributed stablecoins, many of which are secured by another currency, most commonly the US dollar; and the US Securities and Exchange Commission has approved rule changes allowing the launch of spot Bitcoin ETFs in the US. The rise of CBDCs and cryptocurrencies is no longer hypothetical—it is real and happening now.
From an American viewpoint, the US dollar remains strong as the world‘s reserve currency in today‘s economy; however, global FMI advancements are embedding money with new tools that may be preferred for enhanced services and solutions for international trade. Should this trend persist without the US continuing to take steps to modernize its financial infrastructure, its [US] influence in both the global economy and its political stature may diminish.
In 2024, the Digital Dollar Project will continue, through value-driven, real-world technical pilots, public discourse, and convenings, to encourage the US to explore and understand if and how we can build a safer, more efficient, and secure financial system that enhances individual privacy and preserves the role of the US dollar. This may or may not include a US CBDC.
Over the next year, an extension of this work will involve examining the intersectionality of AI and blockchain to determine how these technologies can be utilized in financial markets and risk monitoring. In an evolving ecosystem, where AI‘s influence is rapidly growing, it is critical to understand and manage new risks while also embracing the novel possibilities these technologies can bring to traditional workstreams. This work will bridge knowledge gaps by bringing together a diverse group of stakeholders, including financial institutions, technology providers, regulatory bodies, and academia. The focus will be on highlighting use cases, advancing education on AI applications, and enhancing financial infrastructure through informed, strategic use of AI This is one example where the swift advancement of AI has the potential to accelerate the development of digital currencies. It is crucial, therefore, that we are not merely beneficiaries of this momentum but active participants in shaping and guiding its direction to ensure we build resiliency into the US financial system.
Intersectionality and an open tent approach are critical. Understanding how human, technological, and sociological factors interact is at the heart of this work.
Discussions at the November global convening anchored to five major themes: interoperability, competition and innovation, privacy, security, and inclusion. Although each theme could have warranted its own multi-day conference, what became apparent through the panel discussions was the natural way in which each theme was interwoven—sometimes all themes were seamlessly integrated into a single 45-minute conversation. For instance, one cannot build an inclusion strategy to expand access to a system without also building, at the same time, a cyber strategy that secures and stabilizes the growing system. Differently put, a design choice prioritizing one theme has a ripple effect on others. This interconnectedness highlights a truth akin to Winton Churchill’s famous quote “Out of intense complexities, intense simplicities emerge,“ in other words, the path to simplicity and clarity often requires a direct engagement with complexity.
The convening clarified that these themes, while distinct, cannot be addressed in isolation. There is an inherent linkage between themes and increasingly blurred lines across various domains of innovation. The increased demand for greater autonomy and transparency in our digital systems is not an isolated trend. Instead, it represents facets of a broader movement towards a more interconnected, private, safe, and inclusive global financial ecosystem. This holistic approach to innovation, where each advancement feeds into and shapes the other, is not just beneficial but necessary.
Digital Dollar Project will continue to lead in convening diverse perspectives, encouraging rigorous disagreement and debate, and analyzing all pathways in pursuit of future-proofing the global role of the US dollar. These topics will be addressed through several public forums in 2024 including the second global convening on the future of money, workshops focused on aspects of security and privacy, and data-driven discussions on opportunities that unlock competition and innovation for the US.
And finally, just as we view our themes as interdependent, so should we also view monetary innovations. It is important in this discussion on the future of money that we consider cryptocurrencies, stablecoins, and CBDCs not as isolated assets competing to be the sole payment mechanism, but as complementary players in an ecosystem, each serving distinct use cases. Innovations in different payment types increase optionality and create accountability across both the public and the private sectors to provide money that is private, secure, and trusted.
The fight for the future of money, is a fight about values.
Over the past few years, a paraphrase of French politician George Clemenceau‘s statement about war -that it‘s too important to be left to the generals – has frequently been applied in the context of the future of money: Money is too important a matter to be left only to central bankers. The regularity of the use of this statement, including on the November global convening stage, speaks deeply to the collective understanding that money, at its core, is a powerful social construct that transcends mere storage and transfer of value. Money carries with it the values that individuals subscribe to them – for the US dollar and other free societies these moral values include life, freedom, and the pursuit of happiness.
Today, money is rapidly changing through the application of emerging technologies, fostering significant shifts in our societal structures and altering the fundamental ways we understand and engage with financial systems. If left unchecked, these technologies could develop without prioritizing the public interest, potentially incorporating surveillance capabilities and other tools that limit freedom. Today we see economic, civil rights, privacy, and consumer protection harms in our Web2 system. However, these harms and predatory practices are not unavoidable. They do not have to be the inevitable cost of e-commerce, digital innovation, or a digitally connected global society. Instead, they are the result of isolated innovation, business decisions, market failures, and gaps in regulation and enforcement. Now we have an opportunity to build differently.
In this critical juncture, complacency is not an option. Former Speaker of the US House of Representatives, Paul Ryan, during the global convening, remarked, “The question is can the free world, stay ahead of this [innovation] and protect our critical values, privacy, freedom, liberty, security? We not just America, but we the free world owe it to ourselves and owe it to the world to bring an alternative. An alternative, where we have standards that we all develop, curate, and agree upon so we can have a plethora of competitive products that are out there to defend against advancing solutions from authoritarian governments.”
The US needs to defend the values and the vision we have for the free world. With over 130 countries exploring CBDCs, we are at a stage where we must be active to ensure free society values are reflected in the new systems we create.
In 2024, the importance of individual privacy in a digital economy remains the top priority for the Digital Dollar Project. While privacy concerns have understandably been tied to conversations around CBDCs, the issue requires a broader examination of digital economies and the policies surrounding them. In cases of stablecoins or other centralized value systems, the risk is the same: they become honey-pots for data collection. Whether the government does it directly with digital currency, or indirectly by pressuring private companies to surrender data, the concern about individual privacy remains and should open a dialogue on how we, as a free world, will build systems and policies that extend beyond the frameworks we have today to protect individual privacy and enhance freedom in the future digital economy.
To elevate privacy and drive data-driven discussions, in 2024 Digital Dollar Project will call on partners to collaborate around a series of user research studies focused on understanding people’s relationship with money and privacy, measuring trust within the financial system today and in the future. This will result in an open data set framed by the inclusion and testing of the applicability of Digital Dollar Project’s privacy principles and privacy requirements.
Moving into 2024
The United States does not need to focus on whether or not to deploy a digital dollar right now, but it is crucial to be a decisive voice in the international dialogue on standards. The international standards being developed today should reflect a flexible architecture that can move stores of value of any shape and that reflects free society values. The US must advocate now for a future where digital transactions are more secure, private, and accessible and empower consumers with payment optionality including multiple forms of public and private money. To move forward in this work, requires all stakeholders across industries to get involved with conversations and experimentation where democratic values such as privacy, security, inclusion, interoperability, and competition drive the outcome of the work. Moving into 2024, we look forward and encourage each of you to actively engage in the exploration and shaping of the future of money. Register below for communications on the next global convening.
By Jennifer Lassiter and Katherine Haar /// Jan. 31, 2024
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