Currency wars have long been waged by the United States and others against the likes of Japan and China . The tables could be turned before long, however, if target nations weaponise digital currencies against attackers. With stronger economic sanctions being levied by the US and others against Russia, the issue has assumed greater importance. The incentive for Russia to accelerate digital currency development is greater now that some Russian banks are being denied access to the Swift international payments network. With the advent of central bank digital currencies or CBDCs – a development in which China is playing a pioneering role and which includes Russia’s plan to introduce a digital rouble – there may be wider international use of the currencies of other major powers, thereby undermining dollar hegemony. Digital currencies could erode the “exorbitant privilege” which the US enjoys from the dollar being the world’s main reserve currency, and thus also reduce its power to print money, accumulate national debt and run up trade deficits. As International Monetary Fund managing director Kristalina Georgieva put it recently, “The history of money is entering a new chapter.” This is true, although many people still see the story as one of private cryptocurrencies versus official digital currencies, instead of looking at the geostrategic implications. The issue of cryptocurrencies versus national currencies is certainly important and central banks are focusing on it is because cryptocurrencies are rightly seen as a threat to the domestic and international monetary order. But central bank digital currencies are of a different order of importance. Central bank digital currencies, with China’s digital yuan or e-CNY as the most advanced among major powers, are likely to finance a good deal more bilateral trade and thus indirectly undermine the dollar’s role in this regard. This is regrettable from the viewpoint of global trade and capital flows, as well as for the international economic order in general. But that order is breaking down already under the weight of trade and technology wars, of security obsessions and of the formation of competing politico-economic blocs. As Eswar Prasad, a professor at Cornell University and a senior fellow at the Brookings Institution, noted recently, “We are soon going to be moving to a world where we will have global access to digital versions of the dollar or the Chinese renminbi and many of the other major currencies.” This is not to say that the dollar and the renminbi will be competing any time soon on an equal footing as transaction currencies or as currencies in which countries invest their international reserves. But the balance of power seems destined to shift. China’s yuan unlikely safe haven currency as Ukraine crisis roils markets As then IMF deputy managing director Tao Zhang noted in 2020, “If a few CBDCs become widely adopted and compete, reserve holdings could become more diversified.” However, it is the trade financing role of CBDCs that is of more immediate importance. The e-CNY “will improve the use of the [renminbi] to settle bilateral trade by countries which have already decided to do so for political reasons”, according to Hung Tran, a non-resident senior fellow at the Atlantic Institute in New York. “The People’s Bank of China has currency swap arrangements with about 30 countries; several of those like Russia have reasons to increasingly use the [renminbi] to settle bilateral trade with China via bank transfers through the Chinese Interbank Payment System.” The e-CNY, when available, will “greatly facilitate such already approved transactions” but the deciding factor for more international use of the yuan will be if and when China fully liberalises its capital accounts and further develop its financial markets, Tran told me. Russia, meanwhile, is accelerating efforts to develop a CBDC in light of possible sanctions on its financial industry from the US and the EU, journalist Sam Reynolds wrote recently on the New York-based website Blockworks. “With the threat of Russian banks being possibly disconnected from the global financial system, Moscow is working to develop a central bank digital currency in an effort to give its domestic banks international liquidity should this happen.” The US has been slowest off the mark in developing its own CBDC and as the Atlantic Council observes, “In the long term, the absence of US leadership and standards setting can have geopolitical consequences, especially if China maintains its first-mover advantage in the development of CBDCs.” The council is meanwhile monitoring the national security implications of CBDCs. As it says, “the United States is able to monitor and regulate most digital payment flows of dollars all over the world. But new payment systems could limit the ability of policymakers to track cross-border flows.” Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs