Cryptocurrencies at the heart of geopolitical influence games

Posted on June 12, 2022


Through Pascal Lepautremat.
An article from Conflicts

The UAE was recently in the headlines as the new international center for cryptocurrencies. China is already testing its digital yuan in a few of its provinces, while the West continues to weigh its options. Can crypto currencies help disrupt the geopolitical canvas?

Key decision-makers have long recognized the potential and risks of digital assets. For example, in October 2021, G7 ministers considered the role of digital currencies relevant in modernizing the financial system and accelerating national and international payments. However, they jointly insisted that its use be part of policies that are transparent, regulated and respect the rule of law, against a background of regulation conducive to good economic governance.

Moreover, they seem to overlook the geopolitical importance of digital currencies, unlike China, which seized the opportunity. So while the G7 and the EU are reflecting on the digital currency policies to be implemented, while the digital euro is still in its “research” phase, China has already taken the lead. The People’s Bank of China has been working on the digital form of its sovereign currency since 2014. Today, as part of trials, Chinese authorities have already rolled out a virtual version of the yuan in several provinces.

Future of finance?

China’s desire to take advantage of western countries in the cryptocurrency space reflects Beijing’s determination to use its digital yuan in favor of the “conventional” yuan while also asserting the hegemony of the US dollar, which has no digital equivalent. to day.

China like Russia and their Middle East partners like Southeast Asia are not hostile to the fact that digital currencies could thus contribute to the US dollar losing its dimension of reserve currency, as has been the case since the Second World War. World War, and thus contributes to weakening the United States’ influence game.

In this context, the United Arab Emirates does not fail to send a signal to the whole world that, in addition to strengthening its policies to combat terrorist financing, it has clearly understood the strategic importance of showing openness to crypto currencies.

“The future belongs to whoever thinks of it”, has tweeted the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, after proposing a new body to oversee the introduction of digital assets in the UAE. This is not a pure opportunism, but rather a strategic initiative by the Emirates to position itself as the future international hub for cryptocurrencies and thereby become the financial center of the future. Building on their leadership in innovation, the UAE authorities do not seem to shy away from the inherent challenge of overseeing a world of virtual assets.

In March 2022, Dubai introduced its Virtual Assets Regulation Act and created an independent authority to oversee the regulation, including licensing and management of virtual assets, non-exchangeable tokens (NFT) and cryptocurrencies. The UAE is already seen as the future hub for cryptocurrencies. There are already six cryptocurrency exchanges in the Emirates, including the world’s largest, Binance, that have been given the green light by the Emirates authorities to operate as a virtual asset broker.

No surprise, as the UAE plans to launch its first digital currency by 2026 and place its central bank in the top 10 in the world. The UAE has a major financial center in the Middle East (i.e. the 16e instead of the 190 countries according to the World Bank), are therefore an obvious partner to consider for the West, given the potential demonstrated in the virtual asset sector. Americans and Europeans should consider involving their Emirati partners, who are currently a stress test of their cryptocurrency policies, when considering designing the future of finance. This would facilitate the exchange of knowledge. And the UAE has recently shown that it is seriously committed to addressing any concerns regarding money laundering and the financing of illegal activities through virtual assets.

Fight against money laundering

Collectively, UAE leaders reiterated their determination to fight organized crime, fraud, money laundering and corruption. This is to connect with the international community and to neutralize terrorist financing networks that threaten their region. The UAE has created a strengthened legal framework that meets the expectations of international bodies. They involve their Central Bank and various ministries (Justice, Economy). In August 2021, after the opening of an Anti-Money Laundering and Terrorism Executive Office a few months earlier, specialized anti-money laundering courts were established even in Dubai and Abu Dubai. Customs, financial information agencies and police forces work closely together to ensure effective synergies.

Despite these encouraging signs, the Financial Action Task Force (FATF) placed the UAE on its “grey list” in March 2022. In any case, the Emirates seem determined to demonstrate that the FATF decision they take “extremely serious”, will soon be obsolete given the even more convincing results they aim to achieve in the future. Concerning the fear of Russian money laundering through cryptocurrencies, one should certainly be careful, but it should not be exaggerated either. According to the latest market analysis, between $20 billion and $40 billion is circulating in the bitcoin market. However, the Russian market represents only a meager 0.14% of transactions. In any case, the Emirates authorities seem wary of this aspect and have created a solid legal framework.

Alliance already tested in the geopolitical balance

We have seen the strength of the alliance with the Gulf States in areas such as combating jihadism. The UAE and its regional allies have been instrumental in clearing terrorist financing networks, fighting Islamist ideology and terrorists from al-Qaeda and ISIS as well as Hezbollah. By deepening cooperation on the digital front as well, we avoid ‘black holes’ in the future financial system and ensure that criticism from skeptics does not come out. In another scenario, in addition to China, we could have another emerging crypto power that could set the balance of the geopolitical equilibrium.

And not necessarily in favor of the West. The UAE thus wants to take a proactive and strategic position and convince the skeptics of its determination to fight money laundering and hidden financial movements in favor of Islamic terrorism, which they have shown on many occasions, notably through Libya. she wanted to fight it systematically. The Emirates authorities express their concern about closer cooperation with international bodies (G20, G7 and Gulf Cooperation Council). It is clearly and first and foremost a question of the fight against the financing of terrorism.

But these reforms also reflect the pragmatism of the country’s leaders, for whom the economic attractiveness and stability of a financial system that conforms to international standards are one and the same priority to reassure foreign investors and ensure the diversification of the national economy. .

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