US sanctions can be crippling for those countries that invoke the ire of the world’s largest economy, but a new study suggests some could be fighting back by using crypto-assets to sidestep the dominance of the dollar-led global financial system.
Published on July 11, the Foundation for Defence of Democracies (FDD), a non-partisan think tank that has been described variously as “hawkish” and “conservative”, titled its study “Crypto Rogues – US State Adversaries Seeking Blockchain Sanctions Resistance”.
America’s Naughty List
The study introduces the concept of economic sanctions thus:
The primacy of the dollar has enabled US policymakers to deploy tools of financial coercion and economic sanctions to promote US national security interests without relying solely on diplomacy and military action.
It goes on to say that for decades those countries that the US put on its naughty list sought ways of evading these sanctions but were unable to conduct significant international commerce without moving though the “pipes of the US-led global financial system”.
Now, however, new pipelines are being built
Iran, Venezuela and Cuba
As we’ve seen in the past few weeks, Iran – while declaring illegal the trade of crypto-assets – is planning the possible adoption of a gold-backed national digital currency to help facilitate trade with those countries that will deal with it.
Indeed, dollar-led trade has been crucial for the nation as its oil exports are denominated in the US currency. Its Supreme Cyberspace Council believes the introduction of a national cryptocurrency could help sidestep US pressure.
Last year Venezuala adopted the petro, an oil-backed national cryptocurrency, with limited success. Take up in the petro has, indeed, been so scant that President Nicolas Maduro last week ordered the country's largest bank to start accepting deposits in the cryptocurrency.
And earlier in July, Cuban president Miguel Diaz-Canel said his government was looking into the use of cryptocurrency. While the island nation has survived many decades of US sanctions, its closest ally – crisis-hit Venezuela – has dramatically reduced aid in the form of shipments of cheap oil, which Cuba used for power generation and as hard currency on the open market.
The FDD study remarked:
US adversaries see this development [of blockchain and crypto-assets] as an opportunity to reduce Washington’s ability to impose economic sanctions, which depend on intermediaries like traditional banks to monitor compliance.
Early Days for Crypto-Strategies
The study acknowledges that such strategies are in their infancy, or – as in Venezuela’s case – lack traction and that none of the solutions currently operational could support the volume and speed of transactions moving through the conventional banking system.
And most importantly, because blockchain ventures currently depend on real-world fiat currency and conventional bank accounts, US sanctions pressure for now can reach businesses in the cryptocurrency and blockchain tech space.
The FDD warns, however, that US officials must envision a world in which crypto technology will eclipse US financial dominance in the same way that the dollar came to eclipse the British Pound as the world’s currency of trade.
Washington, therefore, must understand the benefits and threats posed by new financial technologies, maintain the integrity of global finance, and cultivate the expertise and influence to lead in what is becoming an international crypto race.
The study concludes:
The way forward is not to just consider the threats emanating from various types of fintech, but to think more creatively how the global financial system should adapt to technological change.