When we talk about the “digitization of the dollar”, we need to be clear about exactly what this term refers to. It is a contentious topic, especially when the discussion turns to central bank digital currencies (CBDCs). But an idea, it is in fact much more extensive in scope. Indeed, it has the potential to extend the current understanding of money and its applications beyond the confines imposed today.

Many people assume that a digital dollar refers specifically to a CBDC, but there are two distinct conversations. Active legislation is being proposed in several jurisdictions, including the United States, aimed at either limiting or prohibiting CBDCs. Regardless of one’s opinion on these measures, they underscore a key point: the digitization of the dollar should not require government-issued digital currency. The true innovation lies in decentralized tokenization.

Digitization is about infrastructure

For me, the digitization of the dollar can be likened to the tokenization of real-world assets. It's a simple idea: rather than having assets confined to separate financial systems, such as banks, brokerages, exchanges, or payment networks, these assets can exist as on-chain digital representations. Imagine a digital wallet that holds various forms of value, including cash, stablecoins, Bitcoin, tokenized stocks, equity holdings, and other tokenized assets, such as your house.

In this kind of environment, the distinctions between different asset classes start to diminish. Although the assets themselves remain unique, the underlying infrastructure facilitates their movement and interaction. In essence, the digitization of the dollar pertains not just to currency but to creating an infrastructure layer that allows value (and the asset it represents) to move more fluidly.

From liquidation to conversion

Currently, using specific assets for everyday transactions often involves a multi-step and multi-infrastructure process. You might need to sell stock to generate liquidity, move the proceeds into a brokerage account, then to a bank account, and finally through a payment method. This system is laden with intermediaries and settlement delays.

But digital infrastructure changes this dynamic. If assets are available in tokenized form, conversion can occur instantly at the point of transaction. Instead of liquidating assets and waiting for settlement, the system can directly convert the value into the necessary form for payment. This means that a tokenized stock, a stablecoin, or Bitcoin can all serve as usable payment instruments without the conventional friction involved.

The convergence of assets

This is where the digitization of the dollar intersects with a broader trend: the tokenization of financial assets. At the World Liberty Forum earlier this year, leaders from major financial institutions indicated a growing consensus across the industry, that eventually, most financial assets will likely be tokenized. That includes equities, bonds, funds, and other instruments that currently exist within traditional financial systems.

Once this transition occurs, the focus will shift from whether assets are digital to how easily those assets can interact with one another. The effectiveness of payment infrastructure becomes crucial in this context. If tokenized assets exist but cannot seamlessly move between systems, their benefits will be limited. However, if they can transfer effortlessly, the implications are profound.

Everything becomes money

Economists often refer to six characteristics of money: durability, portability, divisibility, uniformity, limited supply, and acceptability. Digital infrastructure alters how these characteristics apply across different asset classes. When assets can be tokenized, transferred, converted, and utilized within payment networks instantly, the practical definition of money begins to broaden. In such an environment, value becomes more fluid. A digital dollar, a stablecoin, a tokenized stock, or another asset can all function as payment instruments depending on the context. This is not because they are identical, but because the infrastructure enables them to be used interchangeably when needed.

The true transformation is not limited to currency alone; it is occurring at the infrastructure level. As financial systems modernize, the capacity to represent assets digitally and transfer them across interoperable payment networks will redefine how value is stored, transferred, and utilized. That is the deeper significance of the digitization of the dollar. It is not just about introducing a new digital currency; it is about creating a financial system in which value, in various forms, can move as easily as information.