Digital currencies, monetary sovereignty, and U.S.–China power competition

The rise of digital currencies challenges practices monetary sovereignty and impacts the international order. Drawing on recent IPE debates about public-private nature money, critique “impossible trinity” “territorial currencies,” this article explores competition between China United States over within system. two largest economies display strikingly divergent regulatory approaches to cryptocurrencies Central Bank Digital Currency (CBDC). completely banned but became a front-runner in developing CBDC. It aims expand RMB's global role without giving up its control. U.S. administrations have instead reluctantly considered regulating cryptocurrencies. Discussions potential dollar (USD) only began 2020. Washington at preserving existing cross-border financial mechanisms offshore infrastructure for USD-denominated transactions credit creation. focuses crime maintaining innovation dynamic private sector preserve “exorbitant privilege.” Emerging infrastructures standards are new technological arena U.S.–China competition. ?????????????????????????????????????????????????????????????“?????”?“????”???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????2020????????????????????????????????????????????????????????????????????????????????????????????????“?????”???????????????????????????????????? As March 1, 2022, there 9516 different whose total value exceeds 1.95 trillion (CoinMarketCap, 2022). Governments begun research develop Currencies (CBDCs) (Bordo, 2021; Buckley et al., 2021). Eighty-six percent world's central banks actively exploring CBDCs, while 14% already deployed pilot projects (BIS, Boar & Wehrli, What impact does digitalization national currencies, blockchain-based other innovative technologies states? rapid growth is receiving critical attention from lawmakers agencies worldwide (Auer Claessens, 2018; Galavis, 2019; PBOC, Riley, Their development has ignited among policymakers theorists transformative implications governance, systems, public policy (Bilotta Botti, Brunnermeier Campbell-Verduyn Bernards, Campbell-Verduyn, 2017; Rose, 2015). Some argue that proliferation stablecoins could initiate systematic “unbundling” authority. Others assert enable money laundering, terrorist financing, tax evasion (Brunnermeier Williams, 2014). This paper evolving relationship sovereignty. attempts improve our understanding how emerging affect choices economies, China, context dynamics Do CBDCs influence autonomy can they engender power shift China? first major economy issue sovereign currency. Chinese analysts fear units account, such as planned Libra cryptocurrency (now called Diem), pose unprecedented (Guo Wang, 2020). Cryptocurrencies might also allow countries circumvent control increase rival great powers. established significance fintech (Ehrlich, 2020; van der Lugt Hough, 2021), emergence CBDC be “game-changer” (W. Shen Hou, controversial. On one hand, some observers anticipate “Sputnik moment” (Murray, 2022) or even eventual downfall USD primary currency (Bhatt, Campbell, S. Fleming Pickford, Smith, 2019). say overhyped primacy not under stress (Chorzempa, 2021a; Li, Paulson, scholarship relations traditionally tackles innovation, power, order issues. Building insights structural aspects (Gill Law, 1989; Gilpin, 1987; Strange, 1971), studies point out persistent system contradicts predictions demise liberal (Norrlof Winecoff, 2015; see Goh, Conceptually, study bridges burgeoning topics: techno-geopolitics. We contribute China's (Cohen, 2012; Helleiner Kirshner, 2014; Kwon, W. 2021) by digitization (infra)structures networks (de Goede, Green Gruin, Rella, By examining blockchain applications, we broaden included techno-geopolitics (Mueller, Rosenbach Mansted, Wong, organized follows: Section “Monetary Sovereignty Currencies” situates conceptual evolution In Sections “China: Defending Monetary through “USA: Balancing Crypto Regulations with Fintech Innovations,” draw expert discourses, official documents, decisions explore strategic motivations behind measures adopted both cases, discourses shifted policies ambitions diverged 2021a). “Digital Power Competition” examines regimes drive across whether transnational Renminbi (RMB) strengthen position vis-à-vis States. Virtual currency, often used interchangeably. To avoid confusion, use terms “digital currency” “cryptocurrency.”. European (2012) defines virtual “a type unregulated, which issued usually controlled developers, accepted members specific community” (p. 5). legal tender status nor guaranteed any jurisdiction (Financial Action Task Force, 2014, p. 4). If subset contradiction because tender. For example, form country's fiat regulated competent authority country (Seth, defined money-like assets primarily managed, stored, exchanged computer “it overall superset includes turn cryptocurrencies” (Frankenfield, based technologies. Most necessarily distributed ledger technology (Narayanan, broader structure offer crucial understand intersection currencies. relevant historical Bitcoin territorialization deterritorialization regimes. Cohen (1998) Agnew (2005) illustrate arrangements last 150 years variegated. They rarely operate according Westphalian logic usage confined territorial borders states. North America, instance, nation-states Canada, States, Mexico needed decades replace foreign gold silver coins—the Spanish-American dollar—that were widely Cancun Toronto, alongside various local coins tokens, territorially exclusive bank (Helleiner, 1999). During Bretton Woods era, was dominated circulated jurisdictions single (Murau Modern Money Theory turned constellation into theoretical proposition: monetarily governments able fully “functioning domestic system,” including means payment frameworks banking, finance, (Tymoigne, 2020, 2). Research economic geography political scrutinizes state-centric assumptions modern macroeconomics. Mundell's (1963) J. M. Fleming's (1962) influential work normalized so-called “triple coincidence” proposes decision-making entity, area (defined GDP boundary), overlap (Avdjiev 2016, 412). puzzles thus focused countries’ inability all three goals independent policies, fixed exchange rates, capital mobility (the trinity”). Politicians forced choose (Aizenman, 2013; cf. Rodrik, 2000). main counterargument against privileging empirical. framework cannot capture complex geographic relationships flows. focus impossible trinity (or “trilemma”) rate no longer corresponds highly globalized situation many diversity constellations just obvious dollarization smaller most important Euro USD. These bounded function (Agnew, 2005), onshore money. expectation deterritorialize possibility denationalization envisioned F. A. von Hayek (cf. Fantacci, Unlike government created, distributed, traded, stored using decentralized therefore beyond reach (Rose, times crisis, declining confidence push citizens increasingly (Williams, 2014) “self-contained ‘money-world’” (Hayes, At moment, it seem like wave imminent. exception Diem. unit exposed progressive penetration network effects Meta's (formerly Facebook's) platform French Finance Minister Bruno Le Maire opined plans promote privatization scale. cope dominant risks consumers, companies, sovereignty, suggests should create (Novak, Arauz (2021) notes threaten stability weaker Global South. facilitate flight foster substitution bottom hierarchy. second debate concerns definition Bitcoin, Ethereum, tokens remains essentially contested: asset, institutional technology? Davidson Fama 2019) these questions theories theory deemphasizes institutions creation Scholars school thought conceptualize account backed state shaped market actors. Private actors environment Klooster, commercial multipliers banking 10 amount issues “fractional reserves” model Murau al. (2020) distinguish types creation: credit, shadow credit. All appear inside outside state, direct authorities. regimes, therefore, differ respect creation, use, management concerning money.1 decoupling dimensions severing territory scholarship, examined part geoeconomic structures shifting hierarchies 1977; Helleiner, 2005; Konings, 2007; 1988). Since end Second World War, enjoyed highest reserve storage. Following (2020, 2), current characterized an “offshore U.S.-dollar system” greatly benefits economy. gains “seignorage” run balance deficit delay redistribute burden adjustment costs Eichengreen, 2011, pp. 45ff.). categorized al.'s tripartite framework. belong category, though do full-fledged their volatilities high. purview legislation (Park share similarities instruments core globalization before 2008 when spaces lack oversight Murau, Roberts, 1995; Sikka, 2003). contrary, example later become RMB, hybrid “direct claim” “authorized operators” state-owned Internet intermediaries provide e-valets services users 22). A promises convenience retaining states (Greene, Like cryptocurrencies, designed payments, involve complicated clearing mechanisms, compliance requirements (The People's [PBOC], When financially world respond inevitably diverge. concept privilege rights “to currency,” determine change regulate territory” (Gianviti, 2005, Instead, internally effective described ability private–public manage achieve objectives 2020).2 Regarding external components linked hierarchy shapes state's regime. tied regime, RMB still resembles classical 448) despite internationalize 2017). former supported long-standing trust technically facilitated suite efficient transactions, swaps. attitudes towards differ. recognize tenders. ecosystems handling exchanges. Meanwhile, authorities wants breathe life internationalization Cohen, Liang, 2020) reducing exposure U.S.-controlled networks. regulation stepwise strengthening since 2015 Zhou 2018). Initially, hub mining trading (Ekman, exchanges accounted Bitcoin's volume. More traded than price strongly correlated developments (Gloudeman, earliest sign crypto-related restrictions came December 2013, PBOC four jointly Notice Precautions Against Risks Bitcoins.3 token specially designated commodity” possess “the same currency.” Therefore, prohibited engaging Bitcoin-related activities “protect statutory prevent laundering protect stability” (PBOC 2013). actions caused upheaval mining. September 2017, Announcement Preventing Financial Initial Coin Offerings (ICO Rules) Accordingly, involved ICO financing Based rules, platforms coin offerings offering purchasing selling providing pricing, information intermediaries, related (PBOC, Henceforth, regulations tighter strictly enforced (Pan, Although officially banned, online continued Hence, enabled stablecoin remained concern (M. Hu May 2021, specialized firms (Reuters, 2021a) after PCOC had speculative investment tools, posing security social declared illegal blocked access platforms. dramatic decline crypto capitalization during quarter 2021 (Figure 1) attributed implementation crackdown. Currently, around 80% U.S., EU, Japanese (Coinhills, State Council's Stability Committee simultaneously strengthened rules 2021. sharp decrease (see Figure 2) migration miners countries. discussions scholars reflect concerns. pinpoint problems transaction, systemic, liquidity, legal, technical risks. increases, may gradually especially small (Chen Ming, 16; B. Wang Wei, 84). expected “decentralization” transmission scale, lead “de-governmentization” entire ecology 16). decision-makers Europe,4 anxious Mu Changchuan, head Center, pointed if 2.7 billion Diem, would limit (Bram, Facebook's CEO, Mark Zuckerberg, remarked Congressional hearing Diem intended system, “will mostly dollars […] will extend America's leadership well democratic values world” (Zuckerberg, 2019, 1). leaders consequentially view threat seeks more autonomy. Arguably, acted quickly chose extinguish kinds jurisdiction. implied abandoning ecosystem (Sharma, Axelrod, Yet, ruled out, advanced vision use. Developing raised policy. exploration traced back 2014 researching prospect currency.5 (2017) institute endeavor in-depth. commentators assume remaining cash circulation, increasing mobile payments (Kharpal, speculate goal dismantle Ant Group's Alipay Tencent's WeChat Pay (Yang, experts centralized wallet-like supporting infrastructure, so “co-exist complement each other” (Liu, interoperate Gjoza, Peters clarified wanted criminal risk disintermediation uncontrolled But requirement 100% deposits changes fractional Widespread adoption scenario capacity generate reduced launched several tests Shenzhen, Suzhou, Xiong'an, Chengdu, Shanghai. According media reports, 261 million unique experimented making worth nearly 13.78 (Xinhua, Beijing Winter Olympics, banknotes converted (Helms, key motive 2021b). Typically, store instrument. way medium 21). goes territory. issuers right regulate—or program—the uses Greene, objective improvement set cooperation used, help reduce dependence dollar-dominated challenge hegemonic dollar, long-term (Choyleva, Contemplating future Xiaochuan, governor, stressed none adopt “dominance approach (Chinanews, Concerns animate hope impose sanctions blockades Society Worldwide Interbank Telecommunication (SWIFT) Dans, necessary, combination alternative systems enhance enhancing globally (van contrast been reluctant yet created Its active promoting Nonetheless, past 2 years, subtle attitude attempted fragmented. initial largely unregulated. Due radical ban, absence blossomed Globally, almost 40% volume handled Table supervision model, multi-agency, Several levels exert currencies.6 efficiently coordinated, categorizations (Hughes, 2017), fraud leitmotif. Crimes Enforcement Network (FinCEN), persecutes crimes implements anti-money efforts (Lennon, guidance Ban Secrecy Act. treats operates environments” (FinCEN, Department Treasury service business. 2015, Commodity Futures Trading Commission (CFTC) classified commodities covered commodity act. CFTC's scope agency clamp down unregistered trade derivatives cryptocurrency. Internal Revenue Service (IRS), property, them policies. presidents generally skeptical Former President Donald Trump supportive Guardian, He asserted little standing dependability” “both dependable reliable” Boom, administration expressed desire undermining officials invoke infamous period “wildcat” 19th century reference (Held, Securities Exchange (SEC) Chair Gary Gensler moved investigate “Wild West” abuses $1.6 (Sutton, 2022), SEC securities. proposal FinCEN crime. required businesses, exchanges, collect identity data make harder t