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Four years ago, the Bank for International Settlements (BIS) introduced a project known as “mBridge,” aiming to establish a cross-border central bank digital currency involving China, Hong Kong, Thailand, UAE, and Saudi Arabia. This seemingly technical initiative reflects a larger conflict that could have significant implications under the administration of US President Donald Trump.
The BIS unexpectedly withdrew from the mBridge project just before the US election, allegedly reaching the “minimal viable product” stage. However, speculation suggests that the decision was influenced by American concerns about potential threats to the US dollar. Trump has been vocal about protecting the dominance of the US dollar, even threatening tariffs on countries attempting to challenge its supremacy.
While the US dollar remains predominant in global financial transactions, recent trends indicate a shift towards diversification and the exploration of alternative payment systems. Central banks are increasing their gold reserves as a safeguard against fiat currency exposure, while China is developing its own payment infrastructure outside of traditional Western platforms.
As the US navigates these challenges, there are differing views on how to maintain the dollar’s preeminence. Some advocate for incentivizing dollar usage through economic policies and technological innovation, while others, like Trump, favor more aggressive measures such as banning central bank digital currencies and promoting stablecoins. Stablecoins, in particular, are seen as a potential tool for expanding dollarization by offering a way to transact in offshore dollars outside of regulatory constraints.
In this evolving landscape of financial geopolitics, the battle for control over digital currencies and stablecoins could become increasingly prominent. As Trump continues to reshape international relations, the importance of financial infrastructure cannot be underestimated. Stay tuned for further developments in this rapidly changing landscape.
For more insights and analysis, please contact gillian.tett@ft.com.