2 Digital payment wallets exist today but the funds in them are ultimately held as investments (like Alibaba’s Yu’e Bao fund) or within accounts in the banking system.
3 See Shreepad Shukla, “Historical Context and Key Features of Digital Money Tokens,” Barclays, August 25, 2020.
4 Inconveniently, Lam’s daily expenses are in Hong Kong dollars, not renminbi; so even if she did get paid in renminbi, Lam would need a way to convert her renminbi-based income into Hong Kong dollars. Moreover the Government of Hong Kong receives tax revenues in Hong Kong dollars, not renminbi. Using the two largest e-wallets in China, Alipay and Tenpay, as intermediaries are out of the question given that Alibaba and Tencent have large U.S. financial entanglements; Alibaba’s primary listing is even in New York.
5 Currently, sending money from one currency into another is slow, expensive, and nontransparent because it involves a chain of intermediaries. Completion requires numerous back-and-forth interactions between multiple parties and full settlement takes days. The cost of sending funds internationally has stopped falling as quickly as it did in previous years because the number of banks involved in international payments has shrunk by around 25 percent since 2010 due to higher regulation. See: Tara Rice, Peter von Goetz, and Codruta Boar, “The Global Retreat of Correspondent Banks,” BIS Quarterly Review (March 2020).
6 More simply still, the Government of Hong Kong could pay her by establishing Hong Kong’s own digital currency, along the lines of the e-renminbi, and pay her directly. But for now there are no plans for a Hong Kong digital currency, probably so as not to steal the limelight from the e-renminbi.
7 Elizabeth Rosenberg, Peter Harrell, and Ashley Feng, “A New Arsenal for Competition: Coercive Economic Measures in the U.S.-China Relationship,” Center for a New American Security, April 24, 2020.
8 Chen Aizhu, S. Zhang, “Exclusive: As U.S. Sanctions Loom, China’s Bank of Kunlun to Stop Receiving Iran Payments—Sources,” Reuters, October 23, 2018. This is also why Russia has been trying so hard to pursue de-dollarization, for instance by converting its reserves out of dollars. It also reacted to U.S. sanctions after Crimea by giving Visa and MasterCard an ultimatum: become vendors to a new domestic payment system of which the state owns 100 percent, or face a total ban in which the state would build its own payments system. Both Visa and MasterCard effectively handed over their technology to stay in the market.
9 For a broader discussion on the U.S. dollar’s role in the world, see and Sahil Mahtani, “The Dollar May Be Knocked Off Its Pedestal,” Wall Street Journal, May 22, 2019, and Sahil Mahtani et al., “Dedollarisation: How a Global Currency Shift May Surprise Investors,” Ninety One Investment Institute, March 15, 2019.
10 London did not supplant Amsterdam as the world’s leading financial center until the turn of the nineteenth century (as a result of Napoleon’s 1806 Continental Blockade), despite the fact that the Netherlands had ceased to be a major player in the eighteenth century after financing the Wars of Spanish and Austrian Succession. Similarly, the U.S. economy surpassed the UK’s in size in 1872 and the entire British empire sometime between 1901 and 1913. But the dollar’s exorbitant privilege—which I measure as its share of global reserves relative to the share of the domestic U.S. economy in global output—surpassed sterling consistently only in the early 1970s. Until the British economy’s absurd and catastrophic run in the 1970s, which led to the 1976 IMF bailout, sterling’s exorbitant privilege was still the greatest in the world. See Youssef Cassis, Capitals of Capital: A History of International Financial Centres 1780–2005 (Cambridge: Cambridge University Press, 2012).
11 Mark Carney, “The Growing Challenges for Monetary Policy in the Current International Monetary and Financial System” (speech, Jackson Hole Economic Symposium, August 23, 2019), Bank for International Settlements.
12 These include barring “primary dealer” status for handling U.S. government debt securities, or blocking FX transactions in U.S. jurisdictions.
13 This can be illustrated using OFAC data. “For European Firms, Resisting American Sanctions May Be Futile,” Economist, May 19, 2018.
14 Niall Ferguson, “America’s Power Is on a Financial Knife Edge,” Boston Globe, September 15, 2019.
15 Bruno Maçães, “Memories of Tehran,” World Game, November 14, 2020.
16 Alexander Chartres, “A New World Disorder?,” Ruffer Review, February 28, 2019.
17 James Dale Davidson and William Rees-Mogg, The Sovereign Individual (New York: Simon and Schuster, 1997).
18 Tether is actually a digital representation of the U.S. dollar, which is why it is so popular. It is a U.S.-dollar-backed digital token that can be transacted in a decentralized way. In theory, each token is backed by a dollar held by the company behind Tether. Cryptocurrencies like that are particularly vulnerable to U.S. power because the banks that process those payments can be sanctioned just as the banks that do business with Iran.