Nearly two years ago, I warned that China’s dominance in cryptocurrencies poses a serious threat to American economic interests. Fast forward to today — China is on the verge of delivering a heavy blow that could set the United States back decades in our efforts to ensure the dollar is the world’s reserve currency.
Now, I have never been much of a China alarmist, and I am not becoming one. However, I am an innovation whistleblower, cheerleader, and optimist.
Our status in the world is thanks to U.S. innovators, entrepreneurs, and the freedom that our government has given these groups to operate. And, as the U.S. economy has developed into a service economy, we have become more and more reliant on cutting edge inventions and efficient solutions.
This is a good thing. Other countries have taken up much of the most intensive, dirty, and dangerous jobs. And, our unemployment rate pre-pandemic was at historical lows. While many people in the U.S. still work in some of the most physical and dangerous jobs possible — fewer of these positions are now needed — and more jobs exist that are easier on the body and pose less of a mortal risk.
The trick is keeping our economic position in the world. And, it is well known that China is coming for the title.
While China is still several generations of technological innovation behind the U.S. — that still isn’t a very big lead and can be measured in months instead of years. However, China already has the lead in cryptocurrency and while still a few important inflection points and world events away, these innovations have given them a possible tool to supplant the dollar as the preferred reserve currency.
China has already gained control of the largest cryptocurrencies and is preparing to release its own digital currency any day now. In fact, millions have already applied to test the digital yuan. China realized the potential that a widespread digital currency could provide for daily transactions and cross-border payments early enough to get a multi-year head start on not only the U.S., but also the rest of the world’s central banks.
While the Department of Justice has mastered the role of cracking down on money laundering and criminal actions in the crypto space, its recent report on enforcement powers inadvertently exposed the chaos faced by cryptocurrency entrepreneurs. The report listed more than half a dozen regulatory agencies which all have different opinions on how to regulate them and none of it makes sense. This simply doesn’t work.
So, consider my whistle blown. The government needs to take action now, and that means doing the best thing that a government can do — get out of the way.
If the U.S. hopes to have any possible chance of catching up with China in the race for mass adoption of digital currencies, we must unleash the most powerful tool at our disposal — American companies and innovation. American companies have been chomping at the bit for years to break out into the market and show the real-world benefits that cryptocurrencies and blockchain technology can provide.
Cryptocurrencies are no longer a novelty item that fluctuates rapidly in value — it is the bedrock of the next generation of digital payments and greater security. If the Unites States had paid even the slightest bit of attention, regulators might have realized that their carelessness has caused great loss for American crypto companies and possibly the future stability of the dollar.
Now it might be that cryptocurrency advancements aren’t the innovation that allows China to dethrone the U.S. economy. But, where there is smoke there is fire. We need to understand the many ways that the U.S. government is hampering innovation. And cryptocurrencies should be the posterchild.
China’s digital yuan will be ready soon, and we have to do everything it takes in order to offer up a fighting chance because as things stand, Chairman Powell of the Federal Reserve and Chairman Clayton of the SEC are providing advantages to Chinese companies that American companies have been waiting for. Rather than hide behind concerns of privacy and security, regulators should allow American crypto companies to embrace the challenge of creating a more secure and privacy-driven world.
Today we are behind in cryptocurrencies, tomorrow what else will it be? We need to free the innovators and allow entrepreneurs do what they do and innovate.
Charles Sauer (@CharlesSauer) is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.