As digital technologies become the rails upon which money moves, the resilience and credibility of currency networks increasingly hinge on the integrity of technological infrastructure. This fundamentally changes the logic of monetary competition, with far-reaching implications for financial and geopolitical stability. PARIS – For more than 80 years, the US dollar has enjoyed unrivaled supremacy in world trade and finance, thanks to America’s unique combination of economic scale, credible institutions, deep and liquid financial markets, and geopolitical might, as well as, crucially, network effects. But a new variable is poised to reshape the global monetary order: data
As digital technologies increasingly act as the rails upon which money moves – through stablecoins, tokenized assets, and central bank digital currencies – the resilience and credibility of currency networks increasingly hinge not only on macroeconomic fundamentals, but also on the technological strength and security of the relevant infrastructure. Of course, macroeconomic fundamentals still matter, and digital currencies raise some conventional macro challenges. In particular, by privatizing seigniorage and facilitating tax evasion, stablecoins could shrink countries’ fiscal revenues.
Moreover, if a stablecoin breaks its peg – say, because its liquidity buffers prove insufficient – its credibility could collapse, triggering a run. If the stablecoin’s interconnections with other assets is sufficiently dense, this may have systemic consequences. A disorderly run on US dollar stablecoins – privately issued digital tokens that are backed significantly by US Treasuries and can theoretically be exchanged one-for-one with dollars – could prove particularly disruptive. Opacity in reporting and auditing, and insufficient regulations in some jurisdictions, compound the risks. But such “classic” credibility issues are just the beginning.
The world could also face a new kind of “cyber” run, triggered by weaknesses in the technological infrastructure underpinning digital assets. Mitigating this risk will not be easy: as the National Institute of Standards and Technology of the US Department of Commerce warned in 2016, quantum computers may soon be able to break many of the public-key cryptosystems currently in use. In other words, infrastructure that appears robust today may turn out to be flimsy tomorrow.Sign up for our weekly newsletter, PS Economics Every Thursday in PS Economics, we offer a concise selection of essential reading on the most important issues related to economics and finance.
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