This article is based on a presentation delivered by Professor Brunello Rosa during our recent Leaders’ Forum call. Prof. Rosa is a Geo-Political Economist and Macro-Financial Strategist with extensive policy experience working in the private sector and academia, advising market participants, policymakers and institutions. He is also co-author of Smart Money: How Digital Currencies Will Win the New Cold War – and Why the West Needs to Act Now.
Digital currencies have evolved from niche experiments to mainstream financial instruments, reshaping the way money is used, payments are made, and global economic power is distributed. But this evolution isn’t just technological, it’s deeply geopolitical.
Three pillars of digital currency
Digital currencies can be grouped into three types:
- Central Bank Digital Currencies (CBDCs) – These are digital liabilities issued directly by central banks. CBDCs provide a “public safe asset,” offering trust and stability in digital wallets during periods of extreme volatility. As Prof. Rosa highlighted, CBDCs are the foundation of trust for the entire system, ensuring individuals and organisations can hold reliable digital money even in times of disruption.
- Stablecoins – Stablecoins are designed to mirror the value of traditional government-issued money, like the dollar or euro, so that one stablecoin is usually worth about the same as one unit of those currencies. Stablecoins aim to maintain a stable value.
- Cryptocurrencies (Crypto) – Decentralised assets like Bitcoin operate on blockchain networks and are mainly speculative investments. Their value can be highly volatile, as they are not anchored to traditional economic fundamentals.
Why digital currencies are rising
Several trends are driving digital money adoption:
- Decline of cash: Cash use is falling worldwide, making digital alternatives increasingly necessary.
- Efficiency and cost: Digital currencies streamline payments, reducing intermediaries and settlement times.
- Programmability: Digital money supports conditional transactions, automated payments and innovative financial products, akin to the leap from basic mobile phones to smartphones.
- Strategic and geopolitical goals: Countries use digital currencies to assert financial autonomy. China seeks to internationalise the renminbi, while Europe wants to maintain strategic control over payments.
- Financial resilience: CBDCs and stablecoins provide reliable alternatives in times of stress, enabling individuals and organisations to safeguard liquidity and maintain trust.
Global approaches
Countries have embraced digital currencies differently:
- United States: Focuses on cryptocurrencies and stablecoins, partnering with payment networks like Visa and Mastercard for digital settlements.
- China: Prioritises state-controlled CBDCs and builds digital payment infrastructure abroad via the “Digital Silk Road”.
- Europe: Emphasises CBDCs like the digital euro to strengthen strategic autonomy.
- UAE: Supports a full spectrum, from CBDCs to crypto, under favourable regulations.
This divide reflects not just financial preference but geopolitical strategy. Digital currencies are tools for influence, shaping international payment systems and global trade.
Maps of adoption often align with geopolitical alliances. Countries adopting China’s digital infrastructures tend to be BRICS nations or Belt and Road participants, while Western nations favor market-driven solutions.
This creates a digital “Cold War” where digital currencies are one of many fronts, alongside trade, technology and supply chain conflicts.
Rewiring global finance
Stablecoins and CBDCs reduce friction in cross-border payments, replacing the multi-layered traditional system involving banks and SWIFT settlements. Transactions become near-instant, lowering operational, credit, and counterparty risks.
For organisations, the shift demands resilience and adaptability:
- Follow national strategies for CBDCs, stablecoins or crypto.
- Support multiple digital payment solutions.
- Focus on Stablecoins, USD-denominated stablecoins are likely to dominate near-term commercial transactions.
- Prepare for Tokenization. Future assets, from real estate to securities, will exist digitally on blockchains. High-level cybersecurity and digital readiness are essential for resilient operations.
As Prof. Rosa emphasised in his presentation, holding CBDCs or stablecoins in a digital wallet ensures financial security even during extreme market volatility. This is an essential foundation for financial resilience in the age of digital money.
The road ahead
The transition to digital money is inevitable. Whether through CBDCs, stablecoins, or corporate-issued tokenized currencies, the financial system is being rewired. Organisations must accept, understand, adapt and build resilience. Fighting the digital transition is futile; preparedness and adaptability will determine who thrives in the new era of digital finance.
As Prof. Rosa reminded us during our Leaders’ Forum session, “the passage from paper money to digital money, when we go from the analog world to the digital world, seems obvious and it’s almost inevitable”.
If you haven’t already done so, we recommend reading Prof. Rosa’s book Smart Money: How Digital Currencies Will Win the New Cold War – and Why the West Needs to Act Now, co-authored with Casey Larsen and published by Bloomsbury. It has been named among the Financial Times’ Best Economics Books of 2024.
Connect with Prof. Brunello Rosa on LinkedIn or visit rosa-roubini.com
