By: Ronald A. Marks

What is the kernel of the issue?

The United States Dollar has been the central currency of the world since World War II. China, soon to displace the US as the world’s largest economy, is now rapidly pushing forward a central bank digital currency (CBDC) meant to give a 21st-century technical “leg up” allowing the Yuan ultimately to replace the Dollar as the world’s currency standard.

Why is the issue important?

The replacement of the US Dollar, after eight decades of its central role, would not be just a blow to our international prestige. It would add another arrow to Beijing’s quiver of arguments that it is a mature power with a workable financial alternative to the US Dollar denominated leadership model. And while Beijing’s unsettled and immature internal financial markets are nowhere near American standards, that does not mean less developed countries, such as those in the Belt and Road, aren’t willing to accept the China model as an alternative to that of the US.   

What is the recommendation?

The Biden administration should take two actions that reflect both the United States’ desire to maintain a competitive edge and the reality of its descent from dominant world monetary leadership. First, after years of discussion, the US Federal Reserve and the Treasury should move forward soon with a definitive implementation plan for a competing Dollar CBDC. Second, the administration should work with the American financial industry and consumers—most of whom are still tied to the 20th Century model—to get them to use and trust a digital currency.