Core Focus: The geopolitical dimensions of cross-border CBDCs, including the de-dollarisation narrative, the functional fragmentation of the international monetary system, and the strategic competition between public CBDC platforms and private stablecoins.
In-Depth Notes:
Cross-border CBDCs are not merely a technical payment innovation; they are instruments of geopolitical competition. They have the potential to reshape the international monetary system by providing alternatives to the dollar-centric correspondent banking system. The geopolitical dimensions of this transformation are profound and contested.
De-dollarisation and the Search for Alternatives:
The de-dollarisation narrative is a key driver of cross-border CBDC development. Countries seeking to reduce their dependence on the U.S. dollar—particularly those concerned about sanctions risk—are exploring CBDC-based alternatives to the dollar-centric correspondent banking system. Project mBridge is framed as part of this narrative, enabling countries to settle cross-border transactions in their local digital currencies, potentially reducing the dollar’s dominance in certain contexts . However, most analysts agree that the dollar’s replacement is not imminent. The U.S. dollar’s global dominance is deeply entrenched, built on decades of trust in U.S. financial systems, the liquidity of U.S. markets, and the dollar’s role as a safe haven .
Functional Fragmentation:
The international monetary system (IMS) is evolving toward what has been termed “functional fragmentation”—different currencies increasingly specialising in specific roles, without any single issuer monopolising the system . This transformation draws on wholesale CBDCs and DLTs but also reflects deliberate institutional choices shaped by geopolitical tensions and the erosion of trust in dollar-centric infrastructure. The U.S. dollar is likely to maintain its primacy in global reserves, but new platforms are enabling regional currencies to gain ground in payments and settlement .
Three Distinct Strategic Paths:
The evolution of the IMS reflects three distinct strategic paths :
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Emerging Markets and China: Building wCBDC-based networks designed to bypass traditional correspondent banking (e.g., mBridge, CBETS).
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European Union: Advancing interoperability and financial infrastructure resilience to safeguard the euro’s regional role (e.g., the digital euro, TIPS).
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USA and UK: Leveraging regulatory frameworks around stablecoins to reinforce dollar dominance through fintech intermediaries (e.g., the GENIUS Act).
The US-China Digital Currency Competition:
The United States and China are waging a digital currency competition through different instruments. China is building public CBDC infrastructure (e-CNY, mBridge) to extend the renminbi’s influence. The US is promoting private dollar-pegged stablecoins to extend dollar dominance into the digital realm . This competition is being waged through both infrastructure and regulation.
Four Scenarios for the International Monetary System:
Analysts have outlined four plausible scenarios for the future of the IMS, ranging from continued dollar dominance to full fragmentation . The outcome will depend on the interplay of technological, economic, and geopolitical factors. While factors supporting change in the balance of the IMS run up against powerful network externalities that favour the continued dominance of the dollar, the rise of cross-border CBDC platforms and regional instant payment system interconnections could gradually shift the balance