Weaponized Interdependence, Payment Systems, and Distributed Ledger Technologies: Examining Policy Challenges and Opportunities in Financial Infrastructure

Abstract

Global finance is redefining grand strategy and influence in the 21st century. There is no practical alternative today that has the scale to challenge the U.S.-led financial system. With it, American influence has been projecting its strategic goals through sanctions, causing unease among international friends and foes alike, applying a pressure referred to as “weaponized interdependence.” However, state-backed digital currencies, developed for efficiency and financial inclusion, are now being considered around the world as a defense against being cut off from the global financial system—and by extension American sanctioning power. This paper will analyze the concept of weaponized interdependence in payment systems, the British financial empire as a historical precedent for it, and how America came to inherit this enviable position. This paper will also analyze what central bank digital currencies (CBDCs) are, the challenge they pose to American financial power, and offer an initial down payment on policy solutions that policymakers may consider to preserve American financial power.