Central Bank Digital Currencies and U.S. Strategic Competition with China

Research Questions

  1. What are the national security implications of both international CBDC developments and a potential U.S. CBDC?
  2. How might the more advanced stage of China‘s CBDC project advantage China?
  3. How might decisions regarding the international governance of CBDCs affect U.S. national power?
  4. How might the design choices of a U.S. CBDC affect its capabilities as an instrument of national power?

This report describes the potential role of central bank digital currencies (CBDCs) in strategic competition. Understanding the national security implications of both international CBDC developments and a potential U.S. CBDC is a central component of President Biden’s March 2022 Executive Order 14067 on “Ensuring Responsible Development of Digital Assets.” This executive order mandated an assessment of foreign CBDCs and their potential effect on U.S. finance, as well as effects on national security and financial crime — concerns that are overshadowed by the relatively advanced stage of China’s CBDC. This report contributes to the discourse that has emerged from that executive order by describing whether and how the more advanced stage of China’s CBDC project might advantage China, how decisions regarding the international governance of CBDCs might affect U.S. national power, and how the design choices of a U.S. CBDC might affect its capabilities as an instrument of national power.

Key Findings

  • China’s CBDC does not pose an urgent threat to U.S. national security.
  • Emerging international CBDC governance is likely to reinforce the existing international financial system rather than undermine it.
  • CBDC collaborations among G20 members that are not part of the G7 could undermine the strength of the U.S. dollar abroad and open workarounds to financial channels that the United States currently relies on to exert leverage.
  • A U.S. CBDC might not be necessary to combat security threats posed by other CBDCs, but it might enable novel national security capabilities, such as new ways to freeze assets and track foreign investments in the United States.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    China’s CBDC Does Not Pose an Urgent Threat to U.S. National Security

  • Chapter Three

    CBDC Global Governance and U.S. National Security

  • Chapter Four

    A U.S. CBDC as a Tool of National Security?

  • Chapter Five

    Conclusion

  • Appendix

    Cross-Border CBDC Collaborations

Funding for this research was provided by gifts from RAND supporters and income from the operation of the RAND Center for Global Risk and Security, RAND National Security Research Division, and RAND Social and Economic Well-Being. he research was conducted by the International Security and Defense Policy Program within the RAND National Security Research Division.

This report is part of the RAND Corporation Research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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