A new study from the Foundation for Defense of Democracies (FDD) claims cryptocurrencies are being used by U.S. adversaries to circumvent the nation’s geopolitical supremacy.
The report—published the same day that President Trump slammed Bitcoin on Twitter—focuses on Venezuela, China, Iran, and Russia, the four countries that are either subject to or most at risk of U.S. sanctions.
Venezuela has already launched a national crypto and China recently accelerated its plans to do the same. Russia, meanwhile, is piloting multiple blockchain projects, seeking to develop a strategic advantage, and—on Saturday—Iran unveiled plans for a gold-backed cryptocurrency.
The FDD study warns that a national digital currency issued by any these nations—particularly one tied to a major commodity, such as oil—may make sanctions much harder to enforce. Washington, it said, needs to “cultivate the expertise and influence to lead in what is becoming an international crypto race.”
China, says the report—while locked in a trade war with America, is currently not subject to sanctions—poses the biggest threat. It’s the most technologically advanced of the U.S. adversaries, has the biggest economy and influence on world trade. It’s piloting blockchain technology, and a national cryptocurrency could compete with the dollar-based financial system.
“China’s buy-in, if it involved moving its trade onto a blockchain platform outside the conventional system, would be a game-changer,” said the report.
But the study also cautions against other—more clandestine—approaches U.S. foes could adopt.
These include creating a digital currency wallet infrastructure that allows residents to hold and trade crypto and use it for local transactions, or building significant reserves in a widely adopted cryptocurrency, and using these to gain more influence in the global financial system.
While Russia’s plans for its own crypto are purely under consideration, or so it claims, there are already suggestions that Russia is sidestepping U.S. sanctions by investing in bitcoin.
Statements made by Vladimir Putin, while not referencing bitcoin directly, suggest that, as Russian dollar assets decrease as a result of U.S. sanctions,“the world will look for alternative savings and transaction methods.” And analysts have highlighted an increase in over-the-counter trading of Bitcoin in Russia—where large quantities are traded, bypassing official exchanges.
Meanwhile, the fresh details about Iran’s plans for a gold-backed cryptocurrency reveal that it will be mined by a small consortium of private Iranian tech companies. Shahab Javanmardi, CEO of FANAP, an Iranian IT firm, also revealed that the new crypto will utilize Iran’s supplies of cheap electricity to “ease optimal use of Iranian banks’ frozen resources.”
The acting head of Iran’s Trade Promotion Organization has also claimed that “Iran is negotiating the use of cryptocurrency in its financial transactions with Austria, Bosnia, Britain, France, Germany, Russia, South Africa, and Switzerland to “circumvent U.S.-led sanctions.”
Venezuela is, to date, the only country to have issued a cryptocurrency, albeit one that has been derided by both the country’s citizens and international trading partners. However the report warned that the experiment is being used as “a valuable case study for other regimes to learn what not to do in deploying a blockchain sanctions resistance plan.”
The U.S., says the report, is at risk of being blindsided as the American financial sector has fewer short-term plans to build out the new types of money transfer systems that are being developed by its adversaries.
“Technology has created a potential pathway to alternative financial value transfer systems outside of U.S. control,” said the report. “The target timeline may be two to three decades, but these actors are developing the building blocks now.”