The next big thing in global commerce is "trust chain" digital platforms. Nations are now creating such platforms to allow businesses to execute transactions from anywhere on the planet securely and irrefutably. These platforms—which combine open alliance legal agreements (like Visa or Mastercard's legal agreements), distributed ledger technology (for example, blockchains like hyperledger), and end-to-end encryption—can handle not only payments but also finance, trade, tax, and audits in a uniform manner.
A well-documented example is Singapore's Project Ubin, sponsored by the country's monetary authority and its Temasek sovereign wealth fund, which is now being deployed after five years of testing and development. China has created similar systems that have already seen large-scale deployment, but which are less well documented. Another example is the Swiss Trust Chain (which MIT helped engineer); that platform is live but its commercial applications are still being developed.
Trust chains add a layer on top of existing internet protocols that transforms the internet from a loosely connected communication medium into a trusted transaction medium. They make it cheaper, easier, and safer to do business with anyone anywhere and anytime. Technologies such as AI, blockchain, and digital identity are aiding this transformation, helping to make software platforms better suited for a distributed world economy.
Digital currencies could allow the government to see everything you purchase and constrain what you can and cannot do with your money.
These platforms bring with them the enormous challenge of transforming diverse legacy systems—for payments, taxes, shipping, customs, and more—to make them suited for a new uniform digital platform. One serious concern in this new regime is the deterioration of personal data privacy and the rising power of data holders, both companies and government agencies. To make these trust chains work, data needs to be more accessible and standardized—but it must also be adequately protected. Technologies such as federated AI, distributed ledgers, open legal alliances, and business models such as data exchanges can make this possible. But we need standards for governance and architecture that ensure such technologies are used.
A big motivation for the deployment of trust chain platforms is many nations' rush to issue central bank digital currencies, which use these same trust chain technologies to facilitate payments and tax collection. These "digital dollars" can make trade and payment cheaper, and make it more difficult to launder money and easier to trace fraud. But unless very carefully constructed, they also allow the government to see everything you purchase and to constrain what you can and cannot do with your money.
These digital currencies are on the rise. A 2021 report from the Bank for International Settlements found that 86 percent of central banks surveyed were exploring the possibility of issuing a central bank digital currency, and the first ones are now live in the Bahamas and Bermuda. Meanwhile, China is conducting large-scale tests with its digital yuan.
The power of the United States and European Union to set international standards will diminish dramatically if digital versions of other countries' currencies become major mediators of the new trust chain trade platforms. Today the United States and EU control virtually all of the worlds' financial systems, and their dominance is a potent weapon in their geopolitical arsenal that is frequently used to combat crime, unethical behavior, and tax avoidance.
Consequently, the geopolitical implications of switching to digital currencies could be significant. For instance, it's likely that new trading blocs, such as countries that are part of China's Belt and Road Initiative, might decide against using digital U.S. dollars or Euros as a means of payment. They might instead rely upon other digital currencies to avoid complying with U.S. or EU standards.
There is an urgent need to formulate a new international modus operandi with a new digital governance system. Lack of cooperation among nations risks a "race to the bottom," where countries compete by loosening worker protections and devaluing their currencies, with citizens of smaller nations suffering the most.
At the end of World War II the world's financial and trade systems were in disarray, and the major nations of the world held a meeting at Bretton Woods that forged new international financial institutions and monetary standards. The current state of affairs calls for a "digital Bretton Woods" aimed at creating governance and standards for privacy, dispute resolution, taxes, and criminal investigation. It must also ensure interoperability between systems being deployed by China, Singapore, Switzerland, and other nations.
These new standards must aim to make digital platforms efficient, secure, interoperable, and inclusive. However, unlike the post-World War II effort, such coordination must include technical and governance standards for all aspects of digital trade, tax, finance, privacy, and security in order to build a stable and inclusive world economy.
Alex Pentland is a professor at MIT and a board member for the UN Global Partnership on Sustainable Development Data. He has previously served as a board member for companies such as Google, AT&T, and a variety of startups. He has also co-led the World Economic Forum and World Leaders Alliance discussions of data, AI, law, and digital systems and is member of the U.S. National Academies.