The idea that restricting cryptocurrencies will help preserve the U.S. dollar’s status as the world’s reserve currency is misplaced. Instead of entrenching the U.S. dollar at the expense of new innovations in money, Congress should focus on improving what the dollar can offer.

Currency Choice

Many members of Congress are concerned about the U.S. dollar losing its status in the wake of the rise of digital currencies. Just yesterday, Representative Blaine Leutkemeyer (R‑MO) asked, “As digital assets become more common in the global marketplace… how do we ensure the dollar remains the [world’s] reserve currency?”

Brian Brooks had the right response, “The U.S. dollar can’t take its primacy for granted, and we need to start thinking about competing on [utility.]” Instead of restricting the market, the answer is to make the dollar better, and cryptocurrencies already offer an insight into how that might take shape.

Cryptocurrencies may not be generally accepted mediums of exchange, but their limited adoption suggests that Americans want stronger financial privacy. In fact, concerns about financial privacy were two of the top three reasons the unbanked said they did not have a bank account when they were last surveyed by the FDIC. Improving the current dollar and banking system by scaling back the Bank Secrecy Act and establishing stronger financial privacy rights would be a major step forward in fortifying the dollar’s position in the world.

More so, cryptocurrencies may offer an incentive for preserving the strength of the dollar, which will ultimately secure the dollar’s status in the long run. Where the American people have the opportunity to choose an alternative in the wake of inflation, the government will have a greater incentive to avoid that inflation in the first place. Countries that have dollarized (both officially and unofficially) are clear evidence of just how powerful monetary and financial alternatives can be for restraining a reckless government’s spending: officials in both Ecuador and Zimbabwe had to face this reality when they lost control of their domestic currency after citizens moved to a sounder alternative.

Cryptocurrencies are an Ally to the Dollar

Finally, George Selgin wrote an important note on Twitter during yesterday’s Congressional hearing, “It can’t be said enough: encouraging the development of USD stablecoins will enhance the dollar’s international status.” Representative Ritchie Torres (D‑NY) later echoed this idea during the hearing when he said, “What I find striking is that the leading stablecoin issuers have chosen to peg their stablecoins to the dollar, which strikes me as a vote of confidence that reinforces, rather than challenges, the status of the dollar as the world’s reserve currency.”

If they are given the freedom to flourish, cryptocurrencies could bring a much-needed level of competition that will encourage improvements to the dollar and enhance its position. The only barrier to that future is the misplaced belief that restricting cryptocurrencies will help preserve the U.S. dollar’s status as the world’s reserve currency.