Explaining variation in national cryptocurrency regulation: implications for the global political economy

Abstract

While still in their nascent stages, cryptocurrencies have the potential to reshape the international political economy by hastening the end of US dollar hegemony and reducing the US’s coercive financial power. Recently, governments have adopted various regulatory approaches to these new technologies. Most commonly, countries have implemented an array of partial and absolute bans. What explains governments’ responses to the new and potentially disruptive technology? We argue that governments’ decisions to ban cryptocurrencies stem from their desire to maintain monetary control. While cryptoization threatens all governments’ monetary policy autonomy, governments who choose to fix their exchange rates and restrict cross-border movement of capital are most motivated to ban crypto because digital currencies can be used to evade exchange and capital controls. A country’s regime type also affects its ability to enact bans; democracies will be less likely to enact a ban than autocracies. Our results suggest that cryptocurrency threatens the international political and economic status quo less than many speculate because regimes most likely to be at odds with US monetary and financial dominance face a strong incentive to ban the technologies in their own countries.