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The dollar diplomacy we need
As the world shifts toward the digital economy, including digital payments for greater ease of cross-border settlements, Western leaders should embrace the discourse on overhauling the existing global financial architecture as an opportunity.
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A clerk fans United States banknotes on May 2, 2024, at a money changer in Jakarta. (AFP/Adek Berry)
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mid the recent maelstrom of political news was an important development for the future of technology-enabled public money. During the BRICS Summit in Kazan, Russia, the Bank for International Settlements (BIS) revealed that it was withdrawing from the digital asset and payments initiative Project mBridge.
Conceived in 2022 as a clearinghouse for central bank digital currencies (CBDCs), mBridge had anchored the BIS’s own work toward a global interbank settlement system to connect CBDCs beyond the control by any single government. Capitalizing on the efficiency gains of blockchain technology, mBridge offered an answer to all who are disenchanted with sluggish and unaffordable cross-border payments.
As recently as June, the BIS had doubled down on the initiative, adding Saudi Arabia to its roster of founding central banks and advancing it out of the pilot phase.
Doubtless buffeted by the geopolitical headwinds coming out of Kazan, BIS General Manager Agustín Carstens told a Group of 30 meeting in late October that “we cannot directly support any project for the BRICS because we cannot operate with countries that are subject to sanctions”.
Carstens’s comments reflect a growing tension in Western capitals. While many support efforts to use new technology to make the financial system more efficient and egalitarian, they don’t want to usher in a world order that is no longer grounded in Western law and norms.
United States intelligence agencies have long highlighted this tradeoff when warning about rogue states that are building sanctions-proof alternative settlement mechanisms or using virtual assets to facilitate bilateral trade, such as between Russia and China. In Kazan, BRICS leaders made no secret of their efforts to create a new financial order and jettison the dollar, echoing long-standing Russian calls for a single blockchain-based BRICS currency to fortify trade against Western sanctions.
The uncomfortable question facing Western policymakers is whether their vision of a borderless digital economy enshrined in Western values is truly best served by a public led model, in which central banks take center stage and organize commerce at the supranational level. After all, a privately led, publicly refereed system has been the norm for the past 80 years.
