Part 3. Borderless Money, Sovereignty with Borders: The Battlefield of the Digital Currency Cold War 🌐
Discussions about stablecoins extend beyond technical architecture into the geopolitical realm. As stablecoins pegged to the US dollar become the lifeblood of the global digital financial ecosystem, they serve as a powerful tool extending US monetary hegemony into the digital domain, far beyond mere market phenomena.
The Shadow of Digital Dollarization: Economic Disempowerment of Nations
Digital dollarization refers to the widespread use of digital dollars like USDC or USDT by economic agents within a country as means of everyday transactions, savings, and investments instead of their national currency. This phenomenon spreads faster in countries with unstable currencies but is quietly infiltrating advanced economies as well. For example, if a developer in Seoul receives payment from a US client in USDC and deposits it directly into decentralized finance (DeFi) protocols without converting it to Korean won, earning dollar-based interest, those funds completely bypass Korea’s financial system.
If this trend intensifies, countries face serious sovereignty threats such as:
- Monetary policy impotence: Even if central banks adjust benchmark interest rates, the market impact is minimal. If all economic activity is dollar-based, central bank monetary policy becomes effectively paralyzed.
- Loss of economic data: When capital flows occur outside national control on blockchains, governments and policymakers lose critical data needed to understand the economy and formulate appropriate policies.
- Dependence on the US economy: National economies become fully dependent on the Federal Reserve’s monetary policy and fluctuations in the dollar’s value.
Paradoxically, this creates a strong strategic advantage for the US. As global demand for dollar-pegged stablecoins rises, issuers must hold US dollar cash or US Treasury bonds as reserves. This generates stable demand for US debt, helping finance America’s massive liabilities and reinforcing the dollar’s reserve currency status in the global financial system.
National Responses: Defend Sovereignty with a ‘Two-Track Strategy’
Facing the massive threat of digital dollarization, countries worldwide are adopting a dual approach to nurture their own digital currency ecosystems—a ‘Two-Track Strategy’ combining top-down government initiatives and bottom-up private innovation.
Track 1: Building the CBDC Fortress
The first track involves governments and central banks developing the most secure and trusted state-backed digital currency, the Central Bank Digital Currency (CBDC). This acts as the ’last line of defense’ against digital dollar invasion and builds a ‘digital fortress’ under national control.
- China’s Digital Yuan (e-CNY): The leading example, aiming for strong state control. Through e-CNY, the Chinese government gains access to all citizens’ financial data, curbs the influence of private big tech like Alipay and WeChat Pay, and strategically aims to elevate the yuan’s status in international trade settlements to challenge dollar hegemony.
- Europe’s Digital Euro: The European Central Bank (ECB) promotes the digital euro to counter both US dollar dominance and the payment market control of US tech giants like Google and Apple. Privacy protection is a core value, aiming to build a European digital economy free from US surveillance.
Track 2: Cultivating ‘National Champion’ Private Stablecoins
CBDC development involves complex technical, legal, and social consensus processes, taking considerable time. Meanwhile, digital dollars rapidly capture markets. As a faster, more flexible response, countries are simultaneously fostering private stablecoins based on their national currencies under government regulation and supervision.
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- Japan’s Progmat Coin: The most representative case. The Japanese government actively supports Mitsubishi UFJ Trust and Banking Corporation (MUFG), a global financial giant, in issuing the yen-pegged stablecoin ‘Progmat Coin.’ This strategy includes:
- Speed and innovation: Private companies can respond to market changes and demands much faster than governments. Agile private players lead the race against the digital dollar’s speed.
- Maintaining monetary sovereignty: Although privately issued, Progmat Coin’s value is pegged to the Japanese yen. All economic activity using this coin occurs within the ‘yen economic zone,’ allowing the Bank of Japan to retain monetary policy influence while embracing blockchain innovation.
- Building a ‘Made in Japan’ ecosystem: The government encourages domestic firms to pioneer new DeFi and security token offering (STO) markets based on yen stablecoins. This industrial policy aims to prevent financial data outflows and secure leadership in the future digital finance industry for Japanese companies.
Ultimately, this two-track strategy is like forming an alliance between government and private sectors against the common enemy of the ‘digital dollar.’ The government lays the regulatory and legal groundwork, while private companies innovate on top to expand their national digital currency territory.
The Payment Layer: The Heart of Future Finance ⚔️
The future of this currency war boils down to the question: ‘Which money will be used for payments?’ This can be concretely examined through a scenario of tokenizing a popular café building in Seongsu-dong for fractional investment.
- Scenario 1 (Dollar Economy Penetration): The building token issuer supports USDC payments to attract global investors. If a French investor buys the building token with USDC, the transaction bypasses Korea’s financial network entirely. Part of the rental income and capital gains flows out as dollar-based assets, draining value from the Korean economy.
- Scenario 2 (Defending Monetary Sovereignty): The Korean government mandates the use of regulated ‘won stablecoins’ or the forthcoming ‘digital won (CBDC).’ The French investor must first convert euros or dollars into digital won to purchase the building token. All transactions occur in won, allowing the Bank of Korea to transparently monitor and control the entire capital flow.
Thus, the ‘payment currency’ of tokenized assets is not merely a matter of convenience but a strategic stronghold that determines a nation’s economic fate. The stablecoin regulations and CBDC developments pursued by countries are fierce competitions to secure dominance over this payment layer.
Continue to part 4. Tokenization Revolution: The Future Where All Assets Become Liquid