The Future of Money and Geopolitics: How Crypto is Changing the Game

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Coinmonks

10 min readApr 11, 2023

The future of money is changing — China knows it, the US hates it and crypto-natives are simplifying it as a matter of centralization vs decentralization. But the ramifications of these changes will go beyond your imagination. This is the story of how crypto is changing geopolitics and international monetary policy.

Key Takeaways

China’s success with its CBDC and interest in cryptocurrency, coupled with its strategic focus on technology development, is expected to accelerate efforts to shift the global economic and political power balance away from the US and its allies and towards China.
China’s implementation of its digital renminbi signifies its leadership in digital finance development. With the US showing considerable fragility in its future-oriented financial system, the world’s value landscape is in danger of being redefined (not for the better).
Crypto/Web3 is a viable disruptor that proves beneficial for the free individual and state.

The Age of Central Banks Digital Currency (CBDC) Is Coming

The US is busy addressing a domestic financial crisis and holding crypto at a chokepoint, meanwhile, China has taken lead in building the world’s first major CBDC — a centralized digital coin backed by the government. Apparently… China’s past decades of research and Xi’s special interest in this technology are all intended to counteract local corruption, increase financial inclusion, ensure government funds are deployed according to purpose and become an alternative to China’s private mobile payment platforms a̶s̶ ̶i̶f̶ ̶t̶h̶e̶ ̶s̶t̶a̶t̶e̶ ̶d̶o̶e̶s̶n̶’̶t̶ ̶h̶a̶v̶e̶ ̶a̶c̶c̶e̶s̶s̶ ̶t̶o̶ ̶t̶h̶a̶t̶ ̶a̶n̶y̶w̶a̶y̶.̶ But the implications of this development extend far beyond. By implementing the e-CNY (digital yuan), China can gain real-time insight into corporate supply chains and changes in strategies or financial conditions of any individual firm that is in its loop. Of course, this geopolitical strategy is not new. The US has exerted its power thus far in a similar manner with its dollar. But today, this potential shift in power seriously threatens our liberty, sovereignty, individual freedom and equal opportunity. How so? First, we need to know China’s ambitions behind the CBDC, what that means for the US and its allies, and where Web3 stands on this tightrope.
Let’s go.

China vs US vs Network States — A New Monetary Policy

If you’ve read Balaji’s Network States you will be familiar with the idea of a Tripolar moment.

As history has taught us, regimes cannot coexist harmoniously. Based on different ideologies, they build different worlds with completely different values. So someone is going to be making the rules this time too. Who’s it going to be?

When China blocked all crypto mining and trading in 2021, the world thought China had turned its back on crypto development. Surprise! China has since then vigorously developed and experimented with its own centralized digital currency, the e-CNY aka digital yuan or digital renminbi. Albeit not backed by public blockchain services and managed entirely by a centralized entity, the e-CNY has successfully harnessed the concept of digital money with retailers and consumers being able to access it without an internet connection, credit or even a bank account. Successful traction has allowed its mass adoption and integrations from smaller cities such as Shenzhen, Chengdu, to larger cities such as Shanghai, to even Hong Kong and cross-border transactions have been taking place.

China’s efforts to create a stable CBDC, their first mover investment into blockchain and other web3 technologies on state level — not limited to its digital renminbi — is likely to trigger a significant shift in the current dollar-based hegemony. The digital yuan means foreign exchange transactions are significantly less expensive, and more efficient compared to traditional (dollar-based) channels. This becomes a critical point to consider for large-value cross-border transactions.

Until now, the US has maintained its tremendous influence over international monetary policy through the extensive power of its dollar. Even when transactions didn’t involve the US dollar, intermediaries or systems under U.S. influence were involved. Meaning the US could impose or enforce sanctions, and US banks involved could cut off US dollars from businesses breaching national security interests. With the dollar as the world’s global reserve currency, the US international priority of influence over emerging market economies was inevitable and Washington was free to keep its money printer running. In this situation, a threat to the dollar means a dramatic change in international monetary policies. Against this backdrop, China is leveraging digital currency as a shortcut to position its yuan as the new prospective global reserve currency.

As said by The Times,

Leadership in this [cryptocurrency] space will have implications for more than just payments: geopolitical ambitions, economic growth, financial inclusion and the very nature of money could all be dictated by who leads the charge and how.

China and Foreign Policy Ambition

That’s not all. China’s ambitions backed by its CBDC and technological development seek to shift political dynamics in ways this generation has never experienced. Take a look at China’s recent three major initiatives.

These technology-based initiatives exemplify Xi and the Chinese Communist Party’s (CCP) ambitions to reduce the economic and political predominance of Western countries and their institutions (US and its allies). As China continues to accelerate trade with neighbouring countries and invest in developing countries (through BRI), it has been simultaneously positioning itself as a global leader in the hardware and software sector of telecommunications and e-commerce. More importantly, as a front-runner in digital currencies, China is positioning itself very nicely to make the rules for the impending digital future.

As a very simple example, the general shift and dominance of China beginning in Asia projected to target the world could start on a small scale like this. Developing country A receives Chinese credit lines (through BRI investment in infrastructure), and China requires A to pay out credits to Chinese companies operating in A. These companies request payments in yuan, no currency exchange is required, and as A (foreign governments) continues to make repayments to its lender (China) the geopolitical power and importance of Chinese currency increases. China’s CBDC accelerates this further.

But this is just the tip of the iceberg in understanding China’s underlying influence. When countries start exchanging hence adopting e-CNY, China can gain access to private transaction data. American firms operating in China are already being pressured to use or accept e-CNY, meaning that the People’s Bank of China (PBOC) has access to their identity and records of transactions. If the Chinese Communist Party asks for this information from the PBOC, under state security agencies, the PBOC is obligated to comply.

What does this mean for the US and why should we all care?

The United States of America, despite its current struggles, is fundamentally founded on the right to freedom, self-sovereignty and democracy. This is what makes it drastically different from China. At a fundamental level, the US system and its national interests seek to protect individual rights. This is why even when the dollar’s dominance enabled Washington to borrow cheaply and exert extensive influence over foreign entities and people, freedom and prosperity were not severely compromised. I dare say, until recently, the US monetary policy was thought to be stable and thanks to the system’s robustness, even relatively attractive.

However, recent instability in the US financial system and their regulatory response has shown the global hegemony its fatal flaw — obsolete financial policies and financial infrastructure. Experts say China is years ahead in digital currency development, and while much of the world has jumped on the change, the US is barely starting to research and in the private sector showing obvious hostility towards digital assets.

Of course, US regulatory concerns are justifiable, and the dollar as a global reserve currency will not become yuan overnight or even in the next few years. However, we must remember

Digital currencies are inevitable — efficiency, transparency, and immutability empowered by Web3 standards cannot be imitated by any obsolete tech
China is in an advantageous place to lead negotiations on global standards and regulations being the world’s first major CBDC.

This means China and its like-minded frens are in the best position to establish favourable structures and standards it finds most profitable for future digital policy. And thus reinforce its repositioning in the geopolitical arena. Simply said, China can set general political principles by which they would like the international community to cohere.

Think about it 🤔 If the Chinese government were able to assume the power equivalent to a Tradfi institution such as the World Bank, IMF or World Trade Organization by introducing its own institutions, what would happen?

So, who should make the rules?

China and democratic countries (mostly influenced by Western foundations) have been built on polar-opposing perspectives on security, freedom and prosperity. This is also largely the reason why the US, the UK, Japan or even South Korea cannot develop CBDCs or provide frameworks as fast as it should — regulatory action (protecting security, data privacy etc) is much more complex in countries with democratic values. Meanwhile, at the most elementary level, CCP will not protect individual privacy or freedom and prosperity over national profit, exemplified by its domestic regulatory control via AI surveillance and more evidently, its course of action throughout history. This is also the reason why blockchain is pretty much mainstream in China, the digital economy is encouraged, and yet crypto trading, mining are completely banned and regulations that strengthen CCP’s domestic leadership are ever-tightening. Then how can we build a future financial ecosystem that is not enslaved to geopolitical instability?

With Bitcoin? Well, not necessarily…but maybe a little.

Crypto and Web3 as a disruptor

I’m not going to conclude this dive with the classic “Bitcoin is the saviour”. Obviously, this matter is extremely complicated, there are various stakeholders involved and changing variables that one paper could not cover. But I want to introduce Web3 and crypto as potential disruptors that could help individuals and states protect self-sovereignty, autonomy, individual freedom and equal opportunity critical to the abundant human experience. Here are two black swan channels empowered by Web3 that could become an optimistic anomaly.

1 The Web3 space is harnessing the magic of fast transparent transactions (efficiency), it holds high standards for data protection (privacy, security) and hopes for mass adoption hence understands the importance of accessibility. You can see this with ANY known de-something project(DeFi, DeSci, DeSo etc). Citizens of the global internet, led by Web3 natives are knowingly and unknowingly paving the road for a safe transition to a digital world and governments must leverage this robust experimentation. Learning from the crypto scene to set standards will ensure any principle and regulation established will protect its citizens.

So what I’m really trying to say is, crypto is one of the rare tools that can protect and ensure the safety of citizens, and not the other way around. The regulatory task is complex but crypto’s immense innovation over the years is what can transcend the current system’s inefficiencies and flaws.

2Moreover, the crypto scene is backed by principles of democratic value and money that is either USD or beyond the reach of state control. Crypto strengthens the dollar (representative of freedom in this context) and empowers the individual. Ask anyone in the Web3 landscape three keywords that define their worldview — they will list values correlated to individual freedom, sovereignty and prosperity.

As for our US Tradfi FUDers, let me share some gospel by Nic Carter in a recent Unchained podcast, (quote shortened)

The collateral in smart contracts is primarily dollars. Stablecoins* are increasingly the dominant collateral type and medium of exchange in crypto. There is more value settled in stablecoins than in Bitcoin or Ether.
Crypto is a vector for proliferating the use of the dollar globally. It spreads the property rights of the US dollar banking system globally.

*99% of stablecoins use the dollar as the unit of account

Conclusion

I’ve been seeing various posts reprimanding the Fed for considering its own CBDC and many crypto holders seeing it as a threat. To these accusations I want to say, they each have their own pivotal, I repeat, PIVOTAL role in the coming years as the digital space integrates into our reality. Although the paths may look similar Bitcoin and the Web3 space that stands for complete disintermediation and decentralization have different goals to States and CBDCs who must prioritize surviving rising geopolitical tensions. Thus let us educate ourselves and consider the greater implications of advancements we support or berate. Let us remember and take pride and responsibility for the projects we build, invest in and use.

This was an ambitious attempt and lacking in many areas. But thank you for reading, and if you are also passionate about any of the above topics please drop by @reshtes_ and leave any thoughts or feedback!