Faculty of law blogs / UNIVERSITY OF OXFORD

Ukraine, Sanctions and Central Bank Digital Currencies: The Weaponization of Digital Finance and the End of Global Monetary Hegemony?


Ross P Buckley
Scientia Professor and the KPMG Law – King & Wood Mallesons Professor of Disruptive Innovation at UNSW Sydney
Douglas W Arner
Kerry Holdings Professor in Law, RGC Senior Fellow in Digital Finance and Sustainable Development, and Associate Director, HKU-Standard-Chartered Foundation FinTech Academy, University of Hong Kong
Anton Didenko
Senior Lecturer at UNSW Sydney
Dirk A Zetzsche
Professor of Law and ADA Chair in Financial Law (Inclusive Finance) at the Faculty of Law, Economics and Finance, University of Luxembourg

Technology is fast reshaping international and domestic monetary and payments systems. Notable developments include the launch of Bitcoin in 2009, the announcement of Facebook’s Libra / Diem cryptocurrency proposal in 2019 and China’s ongoing development of its Digital Yuan. However, the potential of technology to upend the existing international monetary and payment system—dominated by the US dollar—has come into ever sharper focus since the invasion of Ukraine by Russia in February, followed by the West imposing unprecedented sanctions against Russia.

These sanctions include restrictions on making payments in US dollar or euro, including by major international payment systems (such as SWIFT), and on doing business with sanctioned parties. The EU, US and others also restricted transactions with the Central Bank of Russia and froze some US$300 billion of its foreign exchange reserves with the aim of crippling Russia’s military efforts and economy. In our new paper, we argue that these highly unusual moves against the Russian central bank amount to the 'weaponization of finance' via the existing international digital monetary, payments and financial system.

This raises a range of questions central to the future of global finance and geopolitics, including whether this strategy will work and whether it will drive other nations away from the US dollar.

Our new paper considers these questions by analysing the geopolitical and strategic dimensions of how technology is reshaping the international monetary and payments system. While Bitcoin and its thousands of progenies could be ignored safely except for their financial crime impacts, Facebook’s proposal for Libra—the first global stablecoin—brought an immediate and potent regulatory response globally. In terms of monetary history and the role of technology, the announcement of Libra is a key date, regardless of whether it ever actually comes into existence, which now looks highly unlikely. This proposal by a private technology firm to move into the traditional preserve of sovereigns—the creation of money—was always likely to trigger both a strong regulatory response and the launch of rival central bank digital currencies (CBDCs). China moved first with its Digital Yuan (eCNY)— an initiative that has provoked a chain of CBDC projects around the globe. In turn, the COVID-19 pandemic has driven digitalization to new heights, particularly in electronic payments.

Into this environment, the response to Russia’s invasion of Ukraine led by the US and Europe—which has so far focused on weaponizing the existing international monetary and payments system—has highlighted both the power of these Western-led systems and the potential risks of using them. While there have been many calls for the end of dollar hegemony, this latest chain of events has provided powerful motivation for economies—both friend and foe of the US and EU—to build alternative systems to insulate themselves from the risks of dependence on the current architecture. As one Russian official has said, ‘[a]nyone who keeps money in dollars today can no longer be sure that the US will not steal their money’.

A clear path toward this is the development of CBDCs, which we discuss in our new paper. While China’s eCNY was originally developed with a mostly domestic focus, we foresee that its eventual release beyond China will be the catalyst for most major economies—and many others—to issue their own CBDCs. This will become necessary as nations strive to retain and strengthen their monetary, financial and economic sovereignty through technology.

We foresee that competing major currency CBDCs useable via competing payments systems could present a major risk of currency substitution. Such a pattern would reduce the role of the dollar, reinforcing an existing trend, but new networked frameworks for cross-currency payments between major monetary systems could in fact make it convenient to use a small number of currencies, rather than the traditional outcome of international monetary hegemony.

While it is now possible to build a global technological framework for money and payments, we therefore suggest that the geopolitics of a multipolar world—coupled to the evolution of enabling technologies—will result in the birth of a new international monetary system, not dominated by any single currency. Instead, we are likely to witness the rise of a smaller number of major power / major economy central bank digital currencies and largely separate currency areas.

The catalysts of technology, Libra, the Digital Yuan and COVID-19 were already causing major changes in the money and payments system across the world before Russia invaded Ukraine. However, the combination of new technologies and increasingly tense geopolitics represents a real threat to existing payments infrastructure and provides a great impetus for payment systems to evolve dramatically, quite probably towards a multipolar system that will be more fragmented and less efficient than what we have today. These developments also represent, for the US, a real and present danger to the dominance of the US dollar in international trade and finance and the consequential loss of the numerous benefits that flow to the US from the current system.

We conclude by suggesting that even if it is not possible to redesign international monetary and payment arrangements as a universal public good, it may well be time for a ‘Geneva Protocol’ among nations limiting the weaponization of the digital monetary, payments and financial systems. The fragmentation of our current system will be highly inefficient and in the end will likely make everyone poorer.


Ross P Buckley is a Scientia Professor and the KPMG Law – King & Wood Mallesons Professor of Disruptive Innovation at UNSW Sydney.

Douglas W Arner is the Kerry Holdings Professor in Law at the University of Hong Kong.

Anton Didenko is a Senior Lecturer at UNSW Sydney.

Dirk A Zetzsche is Professor of Law and ADA Chair in Financial Law (Inclusive Finance) at the Faculty of Law, Economics and Finance, University of Luxembourg.


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