CBDC, Digital Yuan, and the New Architecture of Financial Power
By Heorhi Tratsiak
In the spring of 2022, a software developer in a sanctioned city sat at her laptop and received payment for a completed project. The client was in Western Europe. Her bank account, for reasons described in the preceding chapter, had become functionally unreachable by international wire. Her Visa card had been suspended. The SWIFT codes of every institution where she held accounts were no longer accepted by the correspondent banks through which international transfers would need to pass.
The payment arrived in forty seconds.
It came in USDT — Tether’s dollar-denominated stablecoin, transmitted over the Tron blockchain. The transaction cost less than a dollar. It crossed no correspondent bank. It touched no SWIFT terminal. It required no relationship with any financial institution whose compliance department might have concerns about her jurisdiction. It required only two things: a wallet address on her end, and a wallet address on the client’s end, and the shared understanding that what moved between them had value.
She converted a portion to local currency through a peer-to-peer exchange. She kept the remainder in USDT, because USDT — unlike local currency — could not be inflated away by a central bank responding to political pressure, and could not be frozen by an institution responding to regulatory signals from abroad.
I want to use this story not as an argument for any particular technology or ideology, but as a diagnostic. It tells us something precise about where the global financial architecture is, and where it is going.
The infrastructure I spent seven years learning — the correspondent accounts, the SWIFT message formats, the card network certification processes, the trust relationships between institutions — is the most powerful financial system ever built. It is also, as this book has attempted to document, a system that can be used as a weapon against the people it was originally designed to serve. And when a system powerful enough to connect every bank account in the world is used to disconnect people from the global economy, those people do not simply accept the disconnection.
They find another way.
They always find another way. This is not optimism. It is historical observation. And understanding what the new way looks like is the most important question in international finance today.
The Law That Financial History Always Enforces
Every dominant financial infrastructure in history has eventually been superseded. Not destroyed — superseded. The earlier systems did not disappear; they were incorporated, reduced in scope, or persisted in niches where the new infrastructure did not reach. But the center of gravity moved.
The Medici banking network of the fifteenth century, built on letters of credit and bilateral trust relationships between merchant families, was the most sophisticated financial infrastructure of its age. It was superseded by the emergence of chartered banking institutions and, eventually, the nation-state as the guarantor of monetary value. The gold standard, which represented the apotheosis of state-backed monetary infrastructure, was superseded by the Bretton Woods system and then by the dollar-denominated floating exchange rate system that followed its collapse in 1971. Each supersession was driven by the same force: the existing infrastructure had been stretched beyond the purposes for which it was designed, and the stresses of that stretching created the incentive and the opportunity for something new.
The dollar-denominated global financial infrastructure, built between 1944 and the early 1990s, reached its moment of maximum extension — and maximum stress — in the decade between 2012 and 2022. The Iran sanctions, the Russian responses to 2014, the full weaponization of SWIFT and the card networks following February 2022: these were the moments when the system demonstrated its coercive power most completely.
They were also the moments when the next system began to be built in earnest.
This is the law that financial history always enforces: the more completely a financial infrastructure is used as a weapon, the more urgently its potential targets work to build something the weapon cannot reach.
The targets, in this case, include not just the specific countries subject to specific sanctions, but every country in the world that has observed what happened to those countries and drawn the rational conclusion that dependence on a single financial infrastructure controlled by a single geopolitical bloc is a strategic vulnerability. That calculation is being made in Beijing, in Riyadh, in New Delhi, in Brasília, and in dozens of capitals that have no particular sympathy for the specific countries that have been sanctioned but have a perfectly rational interest in not being next.
The result is the most significant restructuring of global financial infrastructure since Bretton Woods. It is happening simultaneously on multiple tracks, through multiple technologies, driven by multiple actors with different motivations and different visions of what the new system should look like. What is certain is that it is happening, that it is accelerating, and that the infrastructure described in the first chapters of this book will not, in twenty years, look the same as it does today.
What Bitcoin Actually Was
Let me be direct about something that the financial mainstream, in its initial dismissiveness, and the crypto community, in its initial utopianism, both got wrong.
Bitcoin was not primarily a currency. It was not primarily a speculative asset, though it became one. It was a proof of concept for a specific and radical proposition: that it is technically possible to create a financial infrastructure that requires no trusted intermediary, that is controlled by no government, that cannot be frozen, seized, or suspended by any institution, and that will process a valid transaction regardless of who the sender is, who the recipient is, or what either party’s relationship is with the existing financial and political order.
The proof of concept was imperfect. Bitcoin, as a practical payment infrastructure for everyday use, has significant limitations: transaction speed, energy consumption, price volatility, and a user experience that remained, for most of its first decade, accessible only to technically sophisticated users. These limitations are real and they matter.
But the proposition was proven. For the first time in history, it was technically demonstrated that financial value could be transferred between any two parties, anywhere in the world, without the permission of any institution, without the knowledge of any government, and without the possibility of interception by any compliance department.
This is a fact about the world that cannot be undone. The question, from the moment of Bitcoin’s proof of concept, was never whether permissionless financial infrastructure was possible. It was always what form it would take as the technology matured and as the use cases clarified.
The use cases clarified with the arrival of stablecoins. Bitcoin’s volatility made it impractical for the most urgent real-world application: the movement of value across borders, around sanctions, and through the gaps in the formal financial system, by people who needed the value to remain approximately what it was when they sent it. Stablecoins — cryptocurrencies whose value is pegged to an existing fiat currency, typically the dollar — solved this problem. They provided the payment infrastructure properties of cryptocurrency: permissionless, borderless, uncensorable. They removed the volatility that made cryptocurrency impractical for payments. And they denominated that stability in dollars, which meant they inherited the dollar’s trust without inheriting the dollar infrastructure’s political control.
USDT, issued by Tether and now representing tens of billions of dollars in daily transaction volume, is today one of the most-used payment instruments in emerging markets, in sanctioned jurisdictions, and in the informal economy of international remittances. It moves across blockchains that were designed specifically to make transactions fast and cheap — Tron processes USDT transfers in seconds for fractions of a cent. It is used by software developers receiving payments from clients in countries whose correspondent banks will not accept wire transfers from their jurisdiction. By diaspora workers sending money home to families in countries where Western Union has been forced to suspend operations. By small businesses conducting cross-border trade in markets where the formal banking channel has become too expensive, too slow, or simply unavailable.
The developer whose story opened this chapter was not doing anything exotic. She was using a financial instrument that hundreds of millions of people use, daily, for exactly this purpose. The instrument works. The financial system that spent a decade dismissing it as a toy, as a speculative mania, as a tool of criminals, has spent the last several years observing that it is now a significant and growing component of global financial infrastructure — and wondering what to do about it.
The Digital Yuan’s Real Ambition
If cryptocurrency represents the decentralized challenge to dollar hegemony — built from below, by technologists, without the coordination of any state — the digital yuan represents the centralized challenge: built from above, by the world’s second-largest economy, with the full weight of state infrastructure behind it.
It is important to understand what the digital yuan is not, before understanding what it is. It is not primarily a domestic retail payment instrument, though it functions as one. China’s domestic payment infrastructure — Alipay and WeChat Pay — is already among the most sophisticated in the world. The digital yuan does not represent a significant improvement for domestic Chinese payments. The domestic deployment is, in a sense, a testing and scaling exercise.
The digital yuan’s real purpose is international. It is the foundation of a parallel correspondent banking infrastructure that does not route through the dollar system, that is not subject to OFAC jurisdiction, and that can provide the settlement functionality of the global financial system to any country willing to participate — without those countries’ transactions touching a single American financial institution or being visible to a single American regulatory authority.
The mechanism for this is mBridge — the Multi-Central Bank Digital Currency Bridge, a project developed jointly by the central banks of China, Hong Kong, Thailand, and the UAE, with the Bank for International Settlements as a technical partner. mBridge uses distributed ledger technology to enable direct central bank-to-central bank settlement of cross-border transactions in multiple currencies, without correspondent banks, without SWIFT messaging, and without passing through the dollar-denominated clearing systems that are the current chokepoints of international finance.
I want to be precise about the operational significance of this. The correspondent banking system I described in the opening chapters functions because there is no direct settlement mechanism between most of the world’s central banks. A payment from a Belarusian bank to a Thai bank must pass through intermediary correspondent banks — typically American or European — because those intermediaries provide the trust and settlement infrastructure that makes the transaction possible. The intermediaries, as we have seen, are subject to American and European regulatory authority. They can be compelled to decline transactions, to request additional documentation, to close relationships with institutions that represent unacceptable compliance risk.
mBridge, if it reaches full operational scale, eliminates the intermediaries. Central banks settle directly with each other. The transaction does not pass through any institution subject to Western regulatory authority. The compliance decision belongs to the central banks of the transacting countries, not to the compliance departments of correspondent banks in New York or Frankfurt.
As of the time of writing, mBridge has completed multiple pilot phases involving real-value transactions between participating central banks. The project is not yet at full operational scale. But the technical proof of concept has been established. The infrastructure exists. The question is no longer whether it is possible, but how quickly it will become the preferred settlement mechanism for the countries that have the most to gain from using it — and those countries, as the preceding chapters have made clear, are numerous, strategically significant, and increasingly motivated.
The Race to Digital Currencies
China is not alone in building central bank digital infrastructure. More than 130 countries are currently exploring or developing central bank digital currencies, representing over 98 percent of global GDP. The motivations are varied — financial inclusion, payment efficiency, monetary policy transmission — but the geopolitical motivations are, in several significant cases, primary.
The Bahamas launched the world’s first retail CBDC, the Sand Dollar, in 2020. Nigeria followed with the eNaira in 2021. India’s digital rupee is in active pilot phase. Brazil’s Drex, built on distributed ledger technology, is designed for both retail and wholesale settlement. The European Central Bank has committed to a digital euro. The United States Federal Reserve, characteristically deliberate, has explored the concept through research programs while resisting formal commitment.
Each of these projects represents, at one level, a modernization of domestic payment infrastructure. At another level, particularly for the non-Western economies, each represents the development of a capability that did not previously exist: the ability to conduct monetary policy, settle transactions, and manage payment infrastructure without dependence on American financial institutions.
This does not mean these countries are planning to decouple from the dollar system tomorrow. Most of them have no interest in doing so under normal conditions. The dollar system, whatever its political complications, offers liquidity, stability, and global acceptance that no alternative currently matches.
What these countries are building is optionality. The ability to transact outside the dollar system if and when the cost of transacting within it becomes too high — whether that cost is measured in compliance friction, in political conditionality, or in the kind of sudden, complete disconnection that residents of sanctioned jurisdictions experienced in 2022.
Optionality is not defection. But optionality, at sufficient scale, changes the leverage calculations of everyone involved in the existing system. A country that has no alternative to dollar-denominated correspondent banking is entirely subject to the compliance conditions of that system. A country that has a functioning alternative, even one it does not currently use, has a different negotiating position.
The United States and the European Union understand this dynamic. Their response — the exploration of digital dollar and digital euro infrastructure, the regulatory engagement with stablecoin issuers, the participation in BIS working groups on CBDC interoperability — is the recognition that the network effect advantages of the existing system are not permanent, and that maintaining them requires active management of the transition rather than resistance to it.
The Decentralized Layer That Doesn’t Ask Permission
Below the level of state-sponsored CBDC projects, a different kind of infrastructure is being built. It is built by no government. It is coordinated by no central bank. It is subject to no single regulatory authority. And it is, by design, resistant to the kind of centralized intervention that can suspend a card network’s operations in forty-eight hours.
The Lightning Network is a payment channel system built on top of the Bitcoin blockchain. It processes transactions off-chain — meaning they do not require the full Bitcoin blockchain to confirm each payment — which makes it possible to process Bitcoin payments in near-real-time, at costs approaching zero. El Salvador’s adoption of Bitcoin as legal tender in 2021 was built primarily on Lightning Network infrastructure. The technology is imperfect and evolving, but it represents a real-world deployment of Bitcoin as a payment infrastructure at national scale.
Ethereum’s ecosystem has produced DeFi — decentralized finance — a collection of financial protocols that operate as code on a public blockchain, providing lending, exchange, and settlement services without any central institution. DeFi’s primary use case has been, to date, within the cryptocurrency ecosystem itself. But the infrastructure it represents — financial services that execute automatically, transparently, and without the possibility of censorship by any single actor — has implications that extend well beyond internal crypto markets.
The Lightning Network and DeFi are not yet consumer-grade infrastructure in the sense that SWIFT and Visa are consumer-grade: reliable, globally accepted, accessible through ordinary devices without technical expertise. They are still, in many respects, infrastructure for the technically sophisticated. But they are following the same development trajectory that every technology infrastructure follows: a period of expert-only use, during which the technology is refined and the user experience is simplified, followed by a period of mainstream adoption.
The key insight is not that these systems will replace the existing infrastructure wholesale. They will not, at least not quickly. The key insight is that they represent the first serious competitive threat to the existing infrastructure’s most powerful property: the absence of alternatives. For fifty years, the dollar-denominated financial system’s most durable advantage has been that there was simply no other option for international value transfer that worked at scale. That advantage is eroding. Not quickly. Not cleanly. But irreversibly.
Hawala, Upgraded
While technologists build new infrastructures and central banks race to digitize their currencies, a third force is quietly modernizing the oldest alternative financial system in the world.
Hawala is a value transfer system based entirely on trust between a network of brokers. A sender in one country gives cash to a local broker, who contacts a counterpart broker in the destination country, who pays the equivalent amount to the recipient. The debt between the two brokers is settled periodically, through goods, services, or offsetting transactions. No money crosses a border. No SWIFT message is sent. No correspondent bank is involved.
Hawala is ancient — its documented use dates to the eighth century — and it has survived every attempt to regulate it out of existence because it addresses a need that the formal financial system has consistently failed to serve: fast, cheap, reliable transfer of value between diaspora communities and their home countries, in corridors that the formal system considers too risky or too unprofitable to serve well.
What is happening now is the integration of hawala’s trust-based network model with cryptocurrency’s settlement layer. A hawala broker in Dubai who previously settled his obligations in cash or gold can now settle in USDT, instantaneously, for negligible cost, with full transparency about the transaction on the blockchain even as the identity of the parties remains private. The settlement is faster, cheaper, and more reliable. The trust relationship between brokers, which is the system’s actual foundation, is unchanged.
This hybrid system is not regulated. In many jurisdictions, it is not legal. It is also, demonstrably, functional. It moves billions of dollars annually across borders that the formal system has effectively closed, serving millions of people for whom it is not an exotic workaround but a primary financial service.
I am not arguing that it should be unregulated, or that its opacity from the perspective of financial authorities is desirable. I am observing that it exists, that it works, and that the formal financial system’s choice to treat certain corridors as unserviceable has not eliminated the need — it has redirected it into channels the formal system cannot see or control.
This is the pattern that recurs throughout this chapter: every time the formal financial infrastructure fails to serve a need — whether through deliberate weaponization, or commercial neglect, or regulatory overreach — the need does not disappear. It finds alternative infrastructure. The alternative infrastructure, because it operates outside formal channels, is less visible, less regulated, and less accountable than the formal system. The irony is that attempts to use the financial system as a weapon of exclusion do not eliminate the financial activity of the excluded. They drive that activity into channels that are genuinely more difficult to monitor and govern.
The New Map of Financial Power
I want to draw together the threads of this chapter into a picture of what the global financial architecture will look like in a decade — not as prediction, which would be foolish, but as the logical extrapolation of trends that are already underway.
The dollar will remain the world’s dominant reserve currency and the primary denomination for international trade. No alternative currently available has the liquidity, stability, and global acceptance to displace it quickly. Dollar hegemony will not end in the next decade.
But dollar hegemony in financial infrastructure — the requirement that international transactions route through dollar-denominated correspondent banks, through SWIFT, through Visa and Mastercard — is already beginning to erode. The erosion is driven by three parallel developments that reinforce each other.
First: state-sponsored CBDC infrastructure, led by the mBridge project and analogous systems, will provide an alternative correspondent banking layer for the countries that choose to use it. This layer will not replace SWIFT for the majority of global transactions. It will provide an alternative for the transactions where political risk makes the existing system unacceptable. As that alternative becomes more reliable and more widely deployed, the threshold of political risk required to use it will decrease, and its share of global transaction volume will increase.
Second: stablecoins and their successors will continue to grow as the payment layer for the informal and semi-formal economy. The hundreds of millions of people in emerging markets, diaspora communities, and sanctioned jurisdictions who currently use USDT and similar instruments are not speculating. They are solving a problem that the formal system created and that the formal system has shown no sign of being willing to solve. As stablecoin infrastructure becomes more accessible and more integrated with local financial systems, its role in everyday payments will grow.
Third: the competitive pressure from these alternatives will force reform of the existing system. The dollar system’s maintainers are not blind. They understand that network effects are preserved by providing value, not merely by being the default. The regulatory and infrastructure responses to CBDC development — digital dollar research, stablecoin regulation, SWIFT’s own GPI improvements — represent the existing system’s attempts to maintain its relevance by improving its service.
The result will not be a clean replacement of one system by another. It will be a more complex, multi-layered global financial architecture in which the dollar system remains the dominant layer for large-scale commercial and financial transactions, while alternative systems — state-sponsored, decentralized, hybrid — serve the edges, the corridors, and the use cases that the dominant system has chosen not to serve.
This is not a resolution of the tensions described in this book. The ability to weaponize financial infrastructure does not disappear when alternatives exist — it is reduced but not eliminated. Countries will continue to use financial systems as instruments of foreign policy. But the effectiveness of that use will diminish as the targets develop and deploy credible alternatives. The weapon, as more exits from its reach are built, will become less powerful.
The Unstoppable Principle
I want to be precise about what I am claiming, because the temptation to overclaim in this direction is as great as the temptation to dismiss it.
I am not claiming that cryptocurrency is the future of all finance. I am not claiming that the dollar system is collapsing, or that SWIFT will be obsolete within a generation, or that central banks will surrender their monetary authority to distributed ledgers. These claims are not supported by the evidence.
What I am claiming is something more specific and, I believe, more important: that the period in which a single financial infrastructure, controlled by a small number of states, could serve as the only mechanism for international value transfer is ending. The ending is gradual, contested, and far from complete. But it is happening, and the direction is clear.
The principle at work is one that should be familiar from the history of information technology: systems designed for openness and connectivity are structurally difficult to close. The internet was designed, in its original architecture, to route around damage — to find an alternative path when a primary path was blocked. Financial infrastructure was not originally designed this way. But the new financial infrastructure being built now — blockchains, CBDCs, hybrid trust networks — incorporates, by design or by necessity, a significant degree of redundancy, decentralization, and resistance to single-point control.
A system with genuine redundancy cannot be completely weaponized. It can be made more expensive to use. It can be made slower, more complicated, more costly. But it cannot be turned off. Not by a sanctions regime, not by a compliance cascade, not by a card network suspension. The architecture prevents it.
This is what the developer who received payment in forty seconds understood, without needing to articulate the theory behind it. She needed value to move. The formal system had closed. A different system, built on different principles, was available. The value moved.
The ingenuity that creates these systems does not require permission, either. It requires computers, internet access, and the human capacity for problem-solving that no regulatory authority has yet found a way to sanction. Throughout history, when powerful systems have failed the people they were meant to serve, those people built something new.
They are building it now. In Minsk and in Moscow, in Tehran and in Caracas, in Lagos and in Yangon, in every place where the existing financial infrastructure has been turned against the people it was supposed to connect. In university computer labs and in startup offices and in the quiet of individual developers working on problems that the formal financial system decided were too difficult or too inconvenient to solve.
The builders are not revolutionaries, most of them. They are engineers. They saw a problem. They built a solution. The solution works. Other people used it. More people are using it. More solutions are being built.
The architecture of financial power is changing. The change is not orderly or clean or fully controlled by any of the powerful actors who would prefer to control it. It is emerging from the distributed intelligence of millions of people who need financial infrastructure to work and who have both the tools and the incentive to make it work when the existing system refuses.
This has always been true. What is new is the scale and speed at which it is now possible.
What Seven Years Taught Me About the Next System
I spent seven years learning the architecture of the existing financial system. I learned it from the inside, at the operational level, in the ways described throughout this book. I understand it with the specific precision that comes from processing real transactions through real systems in real time.
That knowledge has not become obsolete. The existing system is not going away. But it has been recontextualized, profoundly, by what I have watched being built alongside it.
The most important thing I learned from working inside the existing infrastructure is the specific properties that make it powerful: standardization, interoperability, institutional trust, and the network effect of universal acceptance. These properties took decades to build. They are genuinely difficult to replicate.
The most important thing I have learned from watching the alternatives emerge is that these properties can be built differently. They do not require central authorities, or correspondent banks, or card network certification processes, or twenty-year relationships between institutions. They can be built through code, through cryptographic proofs, through the slow accumulation of demonstrated reliability.
They are being built. Imperfectly, incompletely, with many failures along the way. But with a momentum that did not exist ten years ago, that has accelerated every time the existing system was weaponized against the people it was supposed to serve, and that will continue to accelerate as the tools become more accessible and the need becomes more urgent.
The future of financial infrastructure will be more complex, more plural, and less controllable by any single actor than the present. That complexity will create new challenges — for regulators, for compliance professionals, for the architects of monetary policy. It will also create something that the present system, in its current configuration, does not provide: the conditions under which no country, no people, and no individual can be completely severed from the global financial system by the decision of a foreign government.
That is not a small thing. That is, in fact, the most important thing.
The weapon is losing its monopoly. The alternatives are not yet complete. But the direction of travel is clear, and it does not run toward greater concentration of financial power in fewer hands.
It runs the other way.