Cross-Border CBDC Adoption: Geopolitical Implications

The rise of CBDCs as a tool for de-dollarization has significant geopolitical ramifications that extend beyond the financial markets. This chapter highlights three key geopolitical implications of CBDC-driven de-dollarization.

Waning USD Supremacy

Firstly, the dominance of the USD will be further undermined. The mighty dollar has provided the U.S. with unparalleled political leverage allowing it to impose devastating unilateral sanctions, influence global trade policies, affect entire economies with its domestic monetary policy, and sustain persistent fiscal deficits with limited consequences.

A CBDC-induced de-dollarization wave, led by a bloc comprising 46% of global GDP, threatens to erode this hegemony by enabling direct peer-to-peer settlement in national currencies, thereby reducing demand for USD in international trade.

Additionally, by virtue of having an alternative payment system that is also objectively better, America’s ability to coerce and isolate ‘misbehaving’ countries will dramatically diminish. This will weaken sanctions as a favored diplomatic tool, reducing their efficacy as a frequent instrument of U.S. foreign policy.

Realignment in a Tokenized World

Second, CBDC networks have the potential to accelerate the fragmentation of the global financial order allowing for new alliances to form and existing ones to shift.

Countries that have historically depended on Western financial institutions for trade and investment may seek to align with emerging CBDC hubs to reduce exposure to a highly politicized and weaponized financial system while simultaneously benefiting from the efficiency and cost-cutting nature of CBDCs.

This will be particularly significant in facilitating South-South economic integration and decoupling from the ubiquitous green hegemon.

These political and economic realignment, which are already unfolding through the expansion of BRICS, may result in increasing the bloc’s global economic and geopolitical influence as a counterweight to the West.

The full geopolitical implications of this shift remain to be seen. However, much will depend on the trajectory of CBDC networks development– specifically, who leads the technological infrastructure, who sets the rules, and how many countries ultimately join these networks.

Potential Financial Bifurcation

Third, if CBDC networks are widely adopted and normalized as part of the international financial infrastructure, they could lead to financial bifurcation, where competing monetary and payment systems become entrenched in opposition to one another.

This could fragment the global economy, deepening divisions between the West and the rest.

Furthermore, it may escalate geopolitical and ideological polarization, fueling trade wars, retaliatory sanctions, and rising tensions that heighten the risk of military conflict.

However, this scenario remains unlikely, as BRICS+ nations seek greater financial representation rather than outright separation from their largest export markets.

Instead, a gradual and strategic transition will likely account for shifting geopolitical and economic dynamics, mitigating the risk of financial bifurcation.