The Digital Dollar Is About Dogecoin, Not China

Washington worries about everything related to China—from its expanding military might to its rapid technological gains to its deeper engagement with developing countries. U.S. officials, not to mention an army of pundits, also point with rising alarm to the Chinese central bank’s launch of the digital yuan this year as the latest sign that the United States is falling behind. In the U.S. Congress, Republican and Democratic legislators, who agree on very little else, are united on the pressing need for new legislation to ensure the U.S. dollar doesn’t fall further behind in a “digital assets space race.”

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Creating a digital dollar is the right goal, but doing it to counter China is the wrong reason. The real challenge to the United States’ central role in the global financial system comes less from Beijing than from dogecoin and other homegrown, unregulated cryptocurrencies. A plan to create a digital dollar that focuses only on beating China risks overlooking the strengths that make the dollar so attractive today and the opportunities for new technologies to magnify those strengths.

An individual asset like dogecoin, the most famous of the cryptocurrency memes, may not itself pose a threat. But the rapidly expanding array of alternative digital assets and “stablecoins”—cryptocurrencies backed by a major currency or precious metal—is about to shake the foundations of the global financial system, with important consequences for market stability, economic growth, and U.S. foreign policy. Even if there were no Chinese alternative already rolled out, Washington should be pushing hard to develop a digital dollar that takes advantage of the dollar’s status as a global reserve currency and the technological revolution at hand.

Washington worries about everything related to China—from its expanding military might to its rapid technological gains to its deeper engagement with developing countries. U.S. officials, not to mention an…