The Foreign Service Journal, April 2023

26 APRIL 2023 | THE FOREIGN SERVICE JOURNAL These efforts notwithstanding, the U.S. is not very prominent in the global policy discussion around CBDCs, probably because it has less incentive to push for drastic shifts to the global pay- ments order. China, on the other hand, with its wide range of data and experience from its e-CNY trials and multilateral collaboration, is becoming well positioned to influence other nations that are seeking domestic payment innovation and new cross-border transaction efficiencies. What the U.S. Should Do The U.S. needs to warn U.S. citizens and firms against the risks from using the e-CNY in China and also to message other nations about the geopolitical dangers of expanding PRC- influenced financial rails. But the most effective defense against the growth of CCP-influenced global financial infrastructure is a more concerted offense of digital finance innovation from the United States. The Fed’s current innovation projects are a drop in the bucket compared to the rising appetite for innovation by central banks and the high pace of international exploration. My current personal view on this rapidly evolving, highly com- plex issue is that the U.S. does not need to create its own central bank digital currency.The risks and complications around privacy are a key factor, but another is that the private sector is much better suited than government bureaucracies for building and refining internet applications. (Imagine the threat to future innovation if an update to CBDC software ended up requiring an act of Congress.) What the U.S. needs to do, however, is lead from the front— with a determined push into digital finance design and develop- ment. That means offering alternatives to the one-dimensional approach of building solely on government infrastructure. The U.S. should leverage its robust and creative private tech sector as it envisions the future of money. New global payment systems should be built, but they should grow on digital rails that are open and adaptable. Countries will continue to explore the ben- efits of digital assets and internet innovation. The United States needs to invest in research and development and international collaborations to construct a digital economy aligned with val- ues of openness, privacy, and freedom. n