Crypto Integration Is Key To The Dollar Remaining The Global Reserve Currency

Crypto Integration Is Key To The Dollar Remaining The Global Reserve Currency

Recent volatility aside, the robust dialogue around bitcoin, stablecoins, and other cryptoassets is paving the way for a more substantive conversation around how money will function in the 21st century. Specifically, integrating aspects of blockchain and crypto functionality can help maintain the value and status of the U.S. dollar in an increasingly competitive currency landscape.

Even with all of the conversation and buzz surrounding bitcoin, Dogecoin, and the like over recent weeks and months, there has been significant progress made in another area of crypto development; integrating aspects of blockchain and crypto into existing fiat currencies. Contradictory on the surface, the integration and merging of fiat and crypto mechanisms makes sense, but not for the reason some market participants might initially think.

Setting aside the crypto maximalists, who believe in the looming and inevitable collapse of fiat based monetary systems – there is already quite a bit of market evidence supporting the convergence between the fiat and crypto economies. For example, the entire stablecoin sector is based around the concept that for payment and transactional purposes, an on-ramp and middle ground from fiat to crypto is still needed. This is not even touching on the multiple initiatives launched by payment portals and providers to facilitate crypto payments in the last year or so.

From a bigger picture perspective, the value of merging the fiat and crypto economies is even more obvious; money and the payment infrastructure is need of an update. This is not news to anyone in the payments sector, but there are several reasons driving this that go beyond simply increasing payment efficiency and transparency. Specifically, as it pertains to the status of the dollar as the global reserve currency, and serving as the backbone for the international payments system, the importance of integrating some blockchain elements cannot be overstated.

Let’s take a look at a few of the reasons why.

Competitive advantage. It is no secret that as the world has become increasingly globalized and multipolar politically that the competition among nations vying to lead has increased dramatically. Outside of the headlines around geo-politics, economic activity, and foreign policy initiatives, the importance of a currency as part of this array of tools is difficult to overstate. Many nations the world over have launched central bank digital currency projects, or something like them, and this is indicative that the value proposition is abundantly clear.

Specifically, the efforts underway in mainland China, although receiving somewhat of a tepid response from individual citizens, represent a clear message. Seeking to supplant the dollar as the global reserve currency is not a secret; the crypto-yuan efforts are simply one additional way in which the yuan is attempting to serve in that role going forward. The U.S. economy, and international payment system, are both (at least) partially dependent on the current status of the U.S. dollar; maintaining this position will require investment and strategic thinking.

More equitable access. Issues around equitable access to financial resources and information are not new nor will they be addressed instantaneously by any technological innovation. That said, and similar to how other digital advancements have lowered barriers to entry across the board, a fully digital (and crypto augmented) U.S. dollar will allow fuller participation in the financial system. In addition to enabling greater access to credit and other financial instruments, such a development also allows higher participation in the wealth creation process embedded in capital markets.

Other benefits are more well known, but no less impactful in terms of the potential impact of a tokenized dollar on the financial system. Lower costs and fees, faster transaction settlements, and the ability to gain access to payments more quickly are tangible benefits already being realized in nations where cryptocurrencies have taken a larger role. Crypto may not be mainstream for transactions in the U.S., but that does not mean it is not already happening elsewhere.

Setting privacy rules. Linking back to the earlier comment about U.S.-China competition and rivalry, the development of 21st century currencies is also an integral opportunity to define and set consumer privacy rules. Clearly there are an array of perspectives and views as to how privacy is defined, the rights of consumers, and what access policymakers have to transactional information. Recent developments in privacy legislation across the globe are clear indicators that this is quickly becoming a high priority issue versus simply talking points.

Currencies, and the transactions conducted via those currencies, are a virtual treasure trove of consumer, business, and spending information. Such data is well positioned to benefit from increased transparency and analytics, but could also be potentially abused by unethical or bad actors. The U.S., along with its allies, has an opportunity to set the rules around privacy for the increasingly digitized currency landscape.

Cryptocurrencies come in a huge multitude of iterations, and the intersection of the fiat and crypto economies is an area that continues to generate robust debate and discussion. That said, and potentially flying under the radar, are the bigger picture geo-political and strategic implications of the merging of fiat and crypto ecosystems. The U.S., the dollar, and the international payment structure dependent on the global reserve status of the dollar all stand to benefit from prioritizing how to successfully integrate aspects of blockchain into the dollar itself.


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