The Three Fronts of the Global Digital Currency War

Jeremy Allaire is the co-founder of the global financial services company Circle, which provides individuals, institutions, and entrepreneurs with a platform to build businesses, invest, and raise capital using open-source cryptographic technologies. Here are his views on the recent trend of central bank digital currencies reported by various countries.

In the past few months, as major global tech and countries push forward with digital currency initiatives, the field of cryptocurrency has brought forth notable new technologies, driving developments in both the market and regulatory aspects.

These new initiatives are prompting leaders worldwide to question what role digital currencies will play in the next decade and whether they will ultimately trigger broader changes in political and economic landscapes, leading to a reshaping of the future international monetary system.

The rapid changes are forcing regulatory bodies worldwide to adapt to a new type of economic system, one that reflects an open, global, and interconnected nature. Allaire stated:

These changes rely on the rapid development of public blockchain infrastructure, such as Ethereum, which allows market participants to issue cryptocurrency tokens representing fiat currencies and other financial assets.

He envisions being able to build new financial systems on this infrastructure divided into three categories, viewing them as the three main battlegrounds of the future economy.

• Open Finance:

The first represents native fiat-backed stablecoins built on public blockchains by ecosystem participants like Circle and Coinbase, such as the USD-backed USDC token. Higher-level financial structures like decentralized lending and credit markets, payment services, and trade finance tools are rapidly evolving, contributing to the open finance movement.

• Government Operations:

The second approach is best exemplified in China's upcoming Digital Currency Electronic Payment (DCEP) infrastructure, designed to establish a fully controlled, centralized, and permissioned infrastructure for a digital currency version of the Renminbi.

While this approach may suit China's economic and political model, it may not fare well in the open internet and is unlikely to receive a warm response from the broader internet development community. However, the power of governments is always significant and cannot be ignored.

• Private Consortia:

The third approach is based on the proposed Libra Association and its reserve currency, attempting to create a top-tier synthetic global digital currency. Facebook's proposal aims to create a centralized and permissioned infrastructure for this economic system.

Worldview

Of these three, which future system do we truly need? We can attempt to pose a counter-question:

Firstly, do we need an open finance system built on the public internet that allows value to remain free with robust privacy protections, easily transferable anywhere in the world, enabling individuals and companies to implement financial arrangements in code through public blockchains? In essence, do we need a global financial system built on the foundation of the internet?

Secondly, if the world adopts the Chinese approach, do we desire a tightly controlled new financial system where fund flows and access are centralized, potentially enhancing the efficiency and global coverage of the Renminbi? However, will this reflect China's tightly controlled internet today and provide equal conditions for global individuals and companies engaging in transactions with China?

Lastly, Facebook's proposed worldview offers a new answer to a global financial system controlled and operated by a few of the world's largest private companies. The structure of Libra seeks to create a new currency based not on existing sovereign fund bases but to establish a global currency. Do we need a new global financial system controlled by a few private companies and participate and innovate on its infrastructure?

Regardless of the answer, governments worldwide, especially those responsible for major global trade currencies, must address the innovation of public cryptocurrencies with global internet coverage.

The choices they face and the decisions made by policymakers will have a significant impact on our future global economic system. Meanwhile, as governments worldwide methodically study and discuss these topics, technological innovators around the world are using cryptographic technology to rebuild the global economic system, which will be a marvel of human creativity.

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