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Digital currencies
This Week in AsiaOpinion
Alessandro Arduino
Alessandro Arduino

Opinion | Cryptocurrency: the next battleground in the US-China rivalry

  • Washington’s weaponisation of the US dollar as a foreign policy tool depends on its pre-eminence as a global reserve currency
  • But the emerging threat to this hegemony is e-currencies, and Beijing’s huge head start could put it in control of the world’s financial structure

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In response to the dollar’s dominance in the global financial system, several countries have begun to explore digital currencies as an alternative to the status quo. Photo: Shutterstock
Alessandro Arduino

The United States Department of Justice last month announced the dismantling of three terrorist financing cyber-enabled networks involving the al-Qassam Brigades, the military wing of the Palestinian Hamas group; al-Qaeda; and Islamic State. The justice department claimed the effort resulted in the biggest seizure of terrorist organisations’ cryptocurrency.

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The bust spotlighted the US’ increasing use of financial sanctions and other forms of economic coercion to either neutralise threats or alter a nation’s conduct, as opposed to military means. Iran is a case in point – the American financial chokehold on Iran has pushed the country into a deep economic recession, and the Trump administration’s “maximum pressure” campaign has made things worse.

The effectiveness of financial sanctions depends on several critical factors. The two most important are the pre-eminence of the US dollar as a global reserve currency, and Washington’s ability to control the flow of payments.

There are several weapons in the financial sanctions arsenal. The three most common are the freezing of bank accounts, seizure of assets, and blocking access to the Society for Worldwide Interbank Financial Telecommunication, commonly known as the Swift system. The US stepped up its use of financial and economic weapons after September 11, but President Donald Trump’s weaponisation of the US dollar as a foreign policy tool has taken this pressure tactic to a new level.

In response to the dollar’s dominance in the global financial system, several countries – including Iran, China and Russia – have begun to explore alternatives to the status quo. But they are not looking to pivot to a sovereign currency issued by a central bank – the emerging threat to the hegemony of the US dollar is the growth and acceptance of digital currencies, as well as the proliferation of blockchain settlement systems.
Signage describing the Petro cryptocurrency at the Ministry of Youth and Sports facility in Caracas, Venezuela, in 2018. Photo: Bloomberg
Signage describing the Petro cryptocurrency at the Ministry of Youth and Sports facility in Caracas, Venezuela, in 2018. Photo: Bloomberg
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Venezuela, which has been hard hit by US sanctions, in February 2018 tried issuing its own cryptocurrency to circumvent financial pressure from Washington and deal with hyperinflation. The Petro, which was backed by oil reserves, failed miserably – but Caracas’ experience opened up the possibility of a national cryptocurrency.

That same year, Iran announced it would issue a national cryptocurrency to use blockchain technology to develop a new financial infrastructure that was not linked to or affected by US-led sanctions. Soon after announcing its programme, the Central Bank of Iran presented a draft on the legal structure for issuing a cryptocurrency based on the open-source blockchain technology Hyperledger Fabric.

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