In the digital future, what do you want your money to be? An instrument explicitly backed by a government? Or an IOU from a private firm that might not be as stable as it claims?

If America’s current leaders have their way, the latter model may prevail — with potentially dire repercussions for the global financial system. Other governments are right to push back.

The world of finance is on the cusp of a potentially profound transformation. A technology known as tokenization is enabling assets of all kinds to follow instructions. In a stock trade, for example, digital cash and shares can be programmed to transfer simultaneously — a process that currently takes a day or two. Such “atomic settlement” can make global payments much cheaper and faster, as well as drastically reduce the risk that promised assets aren’t delivered. In the foreign-exchange market alone, the amount awaiting settlement can be more than $2 trillion on any given day.

What, though, will serve as money in this emerging realm? There’s no true tokenized equivalent of the dollar — on the contrary, the White House has ruled out its creation. Instead, it’s betting on stablecoins, privately issued tokens that purport to be tied to the value of the dollar. Their proliferation, says Treasury Secretary Scott Bessent, can help cement the dollar’s global dominance and create much-needed demand for the US government’s rapidly expanding debt — which new legislation requires them to hold in reserve. He’s hoping the stablecoin market will reach $3 trillion by the end of the decade, from about $300 billion today.

Yet what Bessent sees as success could be a big problem, because stablecoins have serious flaws. They’re mainly issued by Tether, an El Salvador-based entity with suboptimal accounting and anti-money-laundering practices. They’re vulnerable to sudden runs that could undermine confidence in the currency and destabilize the markets in which they park their reserves (Tether is among the largest holders of US Treasury securities). So far, they’re used mostly by crypto traders, criminals and others motivated to overlook such issues.

If dollar stablecoins became widely used in financial markets outside the US, the risks could be global. The European Union and other jurisdictions could find themselves dependent on an inadequate form of money managed beyond their control, in part by private entities and in part by a US administration with ample conflicts of interest. Distress at a stablecoin issuer, or a glitch in its code, could do immense damage as traders suffered losses and markets froze for lack of a payment vehicle.

What to do? Offer something better. To that end, the European Central Bank has been working to enable tokenized transactions with government-issued money, and ultimately to launch a full-fledged digital currency. It should redouble this effort, which is crucial to maintaining a fundamental quality of money: A euro must always be reliably worth a euro, whatever technological form it takes.

This will take some time to get right. Meanwhile, regulators can mitigate the risks of stablecoins by requiring them to hold reserves in the form of central bank deposits. The direct connection to public money would ensure their exchangeability and reduce their potential to destabilize markets, allowing private innovation to proceed while governments catch up.

To understand the dangers that private currencies can present, one need only study the disastrous history of those issued by America’s wildcat banks in the 19th century — an experience that led the government to take control of money in the first place. There’s no need for a repeat.

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