By Kwame A. Oppong, Director, FinTech and Innovation Office, Bank of Ghana
Debates about the future of money have offered significant intrigue for economists, bankers, academia and, frankly, anyone who is willing to listen. Over the past two decades, the conversation has accelerated, fuelled by remarkable technological innovations. In the latter half of this period, the rise of artificial intelligence (AI), blockchain technology and advanced cryptography has propelled financial systems from traditional account-based architectures towards token-based models.
Just as a global consensus seemed to be forming—countries, standards-setting bodies and multilateral organisations were beginning to coalesce around broad thematic frameworks and approaches—the United States of America (US) introduced a third-dimensional rotation to a subject that was already spinning on one axis and in motion on another. The new US federal administration, upon assuming office earlier this year, signalled a clear intent to promote privately issued digital assets, such as cryptocurrencies and stablecoins, while dismissing the possibility of a digital dollar issued by the government. This pivot represented a notable reversal from President Donald Trump’s earlier stance during his first administration. However, for the purposes of this article, the dynamics of domestic US politics will have to be set aside. The broader concern is what this means for US monetary policy, central banks across the world, regulators, key multilateral organisations and, of course, the future of money.
To better appreciate the implications, we must take a retrospective account of the path and pace that led us here and of how far financial-sector innovation has come.
The world operated relatively contentedly until Europay, Mastercard and Visa (EMV) cards were introduced about half a century ago. The advent of computers, enhanced networking systems and the commercialisation of the internet ignited a transformation that has only burnt brighter since.
Today, both advanced and emerging economies have embraced innovations such as contactless payments, mobile-payment solutions (for example, Apple Pay, Google Pay and Samsung Pay), robo-advisory, open banking and buy now, pay later (BNPL) solutions that have redefined consumers’ expectations. Each market has carefully crafted its unique approach and innovation implementation, reflecting its local context and dynamics.
Although regulators are often perceived as slow or disconnected from fast-moving market realities, many are actively reorganising, reorienting and realigning themselves to support innovation. Indeed, their own policy incentives, such as financial inclusion and market efficiency, compel them out of inertia to ensure the successful deployments of these innovations.
All this came to a head when confronted with addressing the parallel developments of cryptocurrencies and central bank digital currencies (CBDCs). The former is private money, practically owned and controlled outside a central bank or monetary authority’s reach, while the latter is a government response. After initially dismissing cryptocurrencies as a fascination of crypto-anarchists and tech enthusiasts, successive usage and adoption data revealed a broader membership of the crypto-fandom: young professionals, students, seniors, entrepreneurs, small-business owners and, interestingly, large corporations, many of which have found utility in stablecoins.
As expected, policymakers convened—often in high-level meetings from Washington to Basel—to assess these developments. Sticking points of CBDCs, such as privacy, programmability, offline capability and stability risks, were gaining clarity. Toolkits were developed, pilots were launched and, in parallel, international standards-setting bodies advocated some form of action on cryptocurrencies and stablecoins in the interest of financial stability and system integrity.
To contextualise the implications of this policy, we must appreciate that the US government’s opposition to a digital dollar and the development of CBDCs in general may be underpinned by several factors, including long-held values around liberty, privacy and scepticism regarding government overreach. However, it thrusts the world into contemplating a future in which the dollar, or its digital equivalent, is no longer the primary currency for settling international financial transactions. Such a vacuum may catalyse the CBDC efforts of countries such as China, with which the US is currently locking horns on tariffs. Similarly, some emerging countries may continue their CBDC developments, fuelled by domestic considerations. Conversely, other countries will likely take a more cautious approach to their CBDC developments in the hopes of seeing some policy stabilisation from the world’s largest economy. This is especially true of those countries that are closely aligned politically and economically with the US.
It is worth noting that the newly unveiled policy included a less-than-subtle promotion of dollar-backed stablecoins, such as the USDT (USD Tether) and USDC (USD Coin). This would ensure that digital-currency development was private but also American, thereby reinforcing dollar supremacy on the global stage. This inherently suggests that deliberations leading to the current policy position may indeed have accounted for some of the risks outlined above.
From a regulatory standpoint, however, the picture is not rosy. The concept of stablecoins has gained broader acceptance among the policymaking community to the extent that the IMF (International Monetary Fund), BIS (Bank for International Settlements), ECB (European Central Bank) and BCBS (Basel Committee on Banking Supervision) have called for its regulation. This is at odds with the US’ current laissez-faire stance. This introduces a major challenge, as these instruments are inherently cross-border in nature and would need to operate within some globally consistent rules. This dilemma will be further exacerbated in inflation-prone economies in which stablecoins’ successes will have negative impacts on central banks’ control over monetary policy.
Finally, the matter of the IMF warrants discussion. What could this mean for its alignment with US policy versus European and Asian central banks? The refrain of promoting safe innovation for a plethora of policy objectives has always contemplated a promotion of digitisation, guarded by the safe rails of clear regulation and strong oversight.
With the US government’s new policy position, the global community may be compelled once more to recalibrate its direction. Among the cornucopia of expert ideas that could be proffered, perhaps the following considerations should also be explored.
ATF (yes, alcohol, tobacco and firearms): Not the agency, but the metaphor. These three items can elicit highly charged debates depending on the country and its social, cultural and religious contexts. Yet, most societies seem to find ways of addressing them. Regulators must adopt this posture to shorten their journeys to the point of accommodation when dealing with some of these innovations.
Brace for more complexity: The future will usher in an era of less catholic crypto-based innovations. They will likely go beyond the comfort zones of regulators and complicate their frameworks. Financial-sector regulators and central bankers must prepare adequately with domain expertise in areas such as decentralised finance (DeFi) and decentralised autonomous organisations (DAOs) to address them.
Interoperability: Both public (central bank digital currencies) and private (cryptocurrencies and stablecoins) monies are going to have to co-exist in the foreseeable future. This inevitability underpins Ghana’s CBDC exploration, for instance, into cross-border trade facilitation using Ghana’s eCedi and an approved stablecoin from Singapore employing its purpose-bound money (PBM) framework. Future CBDC interoperability projects must factor in multi-asset environments, including on-chain deployment.
The US may lose its norm-setting influence: The US’ focus on cryptocurrencies and stablecoins may potentially be rewarded with market success. However, its disengagement may exclude it from playing a prominent role in defining the operating norms for cryptocurrencies and stablecoins. CBDC development, most certainly within this context, will be in the domain of other countries, including the BRICS (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates).
Global institutions must step up: Institutions such as the IMF and BIS will have to lead in harmonising regulatory standards to ensure that key considerations such as financial inclusion, trust and security, cross-border regulation and oversight, privacy and surveillance, and monetary sovereignty are adequately addressed.
Ultimately, society galvanises around ideas and tools that solve real problems. People will always “vote with their feet”. It is incumbent, therefore, on policymakers globally to prepare thoughtfully and act decisively to shape the evolutions of CBDCs, cryptocurrencies and stablecoins. That other unanticipated developments will disrupt this sector is an absolute certainty—the only unknown is when.
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Disclaimer: The views expressed in this article are solely those of the author and do not reflect the views of any associated institution, individual or community.