Geopolitical Russian Roulette Will Favor Cryptos
Russia’s attack on Ukraine has upset all the well-integrated and familiar geopolitical and geoeconomic elements. The world order of the past 30 years looked like a giant jigsaw puzzle with many uneven fragments – such as a rules-based global trading and financial system or a unipolar global political system – that fit neatly into a recognizable pattern. All of these coins are now up in the air.
No one can predict where the coins will fall, whenever they fall, but one outcome seems quite likely: the emerging new world order will likely see accelerated acceptance of official cryptocurrency. Western economies, by necessity, will be at the forefront as Russia arms cryptocurrency to circumvent sanctions and rushes cyber warfare to implant measured chaos. According to US-based media, 21 US companies, including gas producer Chevron, faced cyberattacks days before Russian forces entered Ukraine. In this chaotic reorganization of the global financial system, it will be interesting to see where and how India manages its cyber strategy, including erecting a regulatory framework for private crypto-commodities and rolling out a central bank digital currency (CBDC) with a design that is transparent, user-friendly, hack-proof, and interoperable with other CBDCs. Speed will be key here.
The rapidly changing financial landscape has even forced the United States to present its CBDC plans. President Joe Biden has instructed government agencies and ministries to begin developing a digital US dollar and release a report outlining the risks and benefits of such a move.
The US move comes after months of debate over whether the world’s most powerful currency would bite the digital bullet. Whatever the outcome, a US CBDC is bound to be a crucial turning point for the global financial system. Biden’s executive order is explicit: “My administration sees merit in showcasing U.S. leadership and participation in CBDC-related international forums and multi-country conversations and pilot projects involving CBDCs. Any future dollar payment system should be designed in a way that is consistent with U.S. democratic priorities and values, including privacy, and that ensures the global financial system has transparency , connectivity and an appropriate interoperable or transferable platform and architecture, as applicable. “
It looks like a rearguard action to maintain the dollar’s superior status as the world’s reserve currency. In an article for the US-based Center for Strategic and International Studies, analyst James Andrew Lewis writes: “The end of American ancestry undermines the architecture of global governance and security…governance , are now questioned and inadequate to guide policy in a confrontation. »
Coincidentally, in January 2022, the US central bank, the Federal Reserve, released a report titled “Money and Payment: The US Dollar In The Age of Digital Transformation”, soliciting feedback from stakeholders on the desired architecture for a digital dollar, including all its perceived effects. risks and benefits. The idea behind seeking expert help is to minimize architectural flaws. This exercise is expected to continue independently, in parallel, while the US Treasury Department, led by former Fed Governor Janet Yellen, will also submit a report to Biden in September on the potential benefits and risks of a CBDC. Biden’s executive order focuses heavily on inter-agency coordination to finalize Yellen’s report, much like a wartime effort, suggesting the US government is likely viewing crypto as the next battleground.
India has also publicly announced the launch of a CBDC. But, so far, the Reserve Bank of India (RBI) has shared little information on its likely contours: whether priority will be given to wholesale or retail modules, the choice of technology, whether external agencies will be involved or how the design will incorporate special features suited to the Indian financial system.
From what RBI Deputy Governor T Rabi Sankar said at the February monetary policy press conference, the central bank is apparently handicapped by the legislation: “In the current Union budget , it has been proposed to amend the RBI Act which will allow RBI to issue the digital rupee. Once that’s done, we can try to release pilots, proofs of concepts from CBDC.”
This cloak of secrecy also extends to the government and muddies crypto policy discussions. The government has promised to pass legislation to regulate crypto products in the country and has publicly stated that a draft law has been circulated for feedback from stakeholders. But no one knows the content of the project or among whom it was disseminated. The normal practice is to make the bill available to all and not just to a restricted group; a wider and universal circle of stakeholders improves the quality of inputs, minimizing opportunities for cronyism or clandestine backdoors built into CBDC design.
The government, however, has proposed a tax on profits from crypto trading, sparking speculation that the taxation legalizes crypto products, adding to the confusion. The Center probably had its confidentiality reasons but, after Ukraine, the cards were reshuffled. This might require a change in strategy, which combines domestic political constraints with emerging geopolitical trends.
Rajrishi Singhal is a political consultant, journalist and author. His Twitter handle is @rajrisishinghal.
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