Opportunities for digital assets in a fractured world

Lane, Timo hy D.
Wo king Pape
Oppo uni ies o digi al asse s in a ac u ed wo ld
CIGI Pape s, No. 326
P o ided in Coope a ion wi h:
Cen e o In e na ional Go e nance Inno a ion (CIGI), Wa e loo, On a io
Sugges ed Ci a ion: Lane, Timo hy D. (2025) : Oppo uni ies o digi al asse s in a ac u ed wo ld,
CIGI Pape s, No. 326, Cen e o In e na ional Go e nance Inno a ion (CIGI), Wa e loo (On a io)
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CIGI Pape s No. 326 — July 2025
Oppo uni ies o Digi al
Asse s in a F ac u ed
Wo ld
Timo hy Lane
CIGI Pape s No. 326 — July 2025
Oppo uni ies o Digi al
Asse s in a F ac u ed
Wo ld
Timo hy Lane
Abou CIGI
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Table o Con en s
i Abou he Au ho
1 Execu i e Summa y
1 In oduc ion
2 Geoeconomic F agmen a ion and
he US Dolla
3 A e Digi al Asse s Pa o he Solu ion?
6 Conclusion
7 Wo ks Ci ed
i CIGI Pape s No. 326 — July 2025 • Timo hy Lane
Abou he Au ho
Timo hy (Tim) Lane is a senio ellow a CIGI
and a o me depu y go e no o he Bank o
Canada (BoC) om 2009 h ough 2022. He sha ed
esponsibili y o mone a y policy and unde ook
a se ies o o he esponsibili ies co e ing all main
a eas o cen al bank policy making. He led he
BoC’s wo k on cen al bank digi al cu ency and
paymen s mode niza ion, and chai ed he Financial
S abili y Boa d’s in e na ional wo king g oup on
s ablecoin egula ion. P e iously, he led he BoC’s
in e na ional wo k, se ing as G7 and G20 Depu y.
Be o e joining he BoC, Tim se ed o 20 yea s
a he In e na ional Mone a y Fund (IMF), whe e
he wo ked on a ange o issues conce ning
ad anced and eme ging ma ke economies. He
has published esea ch on mone a y policy and
on a a ie y o o he opics ela ed o economic
and inancial policy. He was also a isi ing ellow
a he Uni e si y o Ox o d. P io o his wo k
a he IMF, Tim se ed as assis an p o esso o
economics a Michigan S a e Uni e si y and a he
Uni e si y o Iowa. He ecei ed a B.A. om Ca le on
Uni e si y in O awa and an M.A. and a Ph.D. om
he Uni e si y o Wes e n On a io in London.
1Oppo uni ies o Digi al Asse s in a F ac u ed Wo ld
Execu i e Summa y
As he global economic and inancial sys ems
become inc easingly ac u ed, his may
unde mine he US dolla ’s cen al ole in
in e na ional ade and inance. Dolla dominance
s ems om he US economy’s weigh in wo ld
ade, he dep h and liquidi y o i s inancial
ma ke s, and, mo e gene ally, us ha
US dolla asse s can be accessed wi h e y
limi ed isk o capi al con ols, con isca ion o
de aul . These ounda ions a e weakening, bu
any po en ial eplacemen , including digi al
asse s, would ace conside able challenges.
Fo c yp o-asse s such as bi coin, he inhe en
ins abili y o hei pu chasing powe limi s
hei use ulness o in e na ional ansac ions.
S ablecoins, in con as , p omise s able pu chasing
powe h ough hei link o ia cu ency —
p ima ily he US dolla . They a e beginning o ha e
a signi ican ole in in e na ional ansac ions,
especially emi ances. Bu main aining ha
link implies close connec ions wi h he US
inancial sys em and equi es a sound egula o y
amewo k. S ablecoins hus seem mo e likely o
become a ehicle o expanding he ole o he
US dolla , a he han enabling o he ju isdic ions
o lessen eliance on he Uni ed S a es.
In his con ex , many coun ies a e explo ing
cen al bank digi al cu encies (CBDCs),
including wi h a iew o main aining mone a y
so e eign y. Few economies a e cu en ly
mo ing o launch a CBDC, bu ha could change.
I se e al key coun ies launched hei own
CBDCs, ecen expe imen s wi h making CBDCs
in e ope able could poin he way o acili a ing
ansac ions ou side he US o bi . Bu ha
app oach would equi e an unusual deg ee o
coope a ion among pa icipa ing ju isdic ions.
In oduc ion
How will he wo ld’s money e ol e in an age
o geoeconomic agmen a ion?1 A e decades
o globaliza ion — wi h he Uni ed S a es a
he cen e — he p ocess o libe alizing wo ld
ade and inance has begun o be e e sed.
The wo ld is inc easingly becoming ac u ed
along economic and inancial as well as
poli ical lines. Does ha spell he end o he
US dolla ’s dominance? I so, does ha c ea e
oppo uni ies o digi al asse s o ake i s place?
These ques ions a e ela ed o he us ha is
undamen al o all money and paymen s: us
ha money can be ans e ed eely and accep ed
wi h a s able pu chasing powe . In e na ionally, he
dominance o he US dolla elies on he cu ency’s
s abili y as a means o paymen o impo s. I
also depends on he openness o he US inancial
sys em, wi h con idence ha US-based asse s can
be used and ans e ed wi hou in e e ence.2
While us among na ions is always limi ed
and condi ional, i is now de e io a ing. Wo ld
ade is becoming inc easingly segmen ed wi h
moun ing ade es ic ions and he ejec ion
o he ules-based amewo k o in e na ional
ade (Gopina h 2023). The inc easing applica ion
o inancial sanc ions ha a e no suppo ed o
espec ed by many key ading coun ies has
weakened con idence ha US-based asse s can be
ans e ed eely and aised ques ions abou he
use o US-cen ed inancial in as uc u e. These
ends we e al eady in play p io o his yea , bu
hey ha e been accele a ed by he cu en US
adminis a ion’s ac ions and p onouncemen s —
including e a ic ade policy announcemen s,
bellige ence owa d US allies, iscal i esponsibili y,
and challenges o he Fede al Rese e’s
independence and o he ule o law mo e gene ally.
These o ces may unde mine he US dolla ’s
cen al ole as a ese e and ading cu ency.
1 The e m “geoeconomic agmen a ion,” used by Gi a Gopina h
(2023) and Ahn e al. (2023), seems bes o cha ac e ize his se o
de elopmen s.
2 Despi e hegene alopennesso majo economies o inancial lows,
c oss-bo de paymen s emainno o iouslyexpensi e,slowandlacking
in anspa ency.TheG oupo Twen yhasde elopeda oadmap o 
add essing hesep oblems,bu p og esshasso a beenslow(Financial
S abili y Boa d [FSB] 2024).
2CIGI Pape s No. 326 — July 2025 • Timo hy Lane
In heo y, his scena io could c ea e oppo uni ies
o digi al cu encies, which a e designed o
be us - ee. C yp o-asse s we e o iginally
mo i a ed by he libe a ian ision o elimina ing
he need o us ed hi d pa ies, such as he
cen al bank and comme cial banks, eplacing
hem wi h an algo i hm ha c ea es an incen i e
mechanism o main ain he c yp o asse ’s
alue and alida e ansac ions. Could his be
pa o he solu ion o he b eakdown o us
associa ed wi h geoeconomic agmen a ion?
This pape discusses how geoeconomic
agmen a ion may unde mine he ole o
he US dolla . I hen examines he po en ial
ole o digi al asse s, including c yp o-asse s,
s ablecoins and CBDCs. I concludes ha none
o hese is ye in a posi ion o supplan he US
dolla as he wo ld’s money o he u u e.
Geoeconomic
F agmen a ion and
he US Dolla
The US dolla is he dominan means o paymen
and in oicing uni in in e na ional ade, as well as
he main in e na ional ese e cu ency. Likewise,
global paymen s ely la gely on in as uc u es
such as SWIFT ( he Socie y o Wo ldwide
In e bank Financial Telecommunica ion) ha a e
subjec o subs an ial US in luence and con ol.
The dominance o he US dolla a ose in he con ex
o he un i alled size and s eng h o he US
economy in he a e ma h o he Second Wo ld Wa .
I has con inued despi e he declining US sha e in
he wo ld economy and global ade, and despi e
he eme gence o o he la ge cu ency a eas. In he
ea ly 2000s, some obse e s expec ed he eu o o
ake on a much la ge in e na ional ole gi en he
economic weigh o he eu o a ea. Then, in he las
decade, China’s eme gence as he wo ld’s second-
la ges economy, and apid g ow h, seemed o se
he s age o he enminbi (RMB) o challenge US
dolla dominance. Bu nei he o hese cu encies
has made subs an ial in oads on he sup emacy o
he US dolla . In pa icula , despi e China’s ac i e
p omo ion o he in e na ionaliza ion o he RMB,
ma ked by he In e na ional Mone a y Fund’s 2016
decision o include he RMB in he cu ency baske
o he special d awing igh s, China’s cu ency
s ill accoun s o a small sha e o ade in oicing
and paymen s and in e na ional ese e holdings,
ela i e o he coun y’s economic weigh .
The e has been much analysis o he dominance
o he US dolla — e med “exo bi an p i ilege”
as i enables he Uni ed S a es o spend beyond
i s income and bo ow a lowe ma ke a es.
Some key ac o s a e he impo ance o he
Uni ed S a es in wo ld ade in he con ex o
globaliza ion, oge he wi h he dep h, liquidi y
and openness o he US inancial ma ke s and
he US go e nmen ’s s ong c edi wo hiness,
which has made US T easu y bonds he ul ima e
sa e asse . The e is a i uous ci cle, in which
in oicing o ade in US dolla s and holding
asse s in ha cu ency a e mu ually ein o cing
(Gopina h and S ein 2021). Unde pinning i all is
con idence ha US dolla asse s can be accessed
unde all ci cums ances — wi h e y limi ed
isk o capi al con ols, con isca ion o de aul .
How is his en i onmen changing in an age o
geoeconomic agmen a ion? Globaliza ion began
o be e e sed in he a e ma h o he 2007–2008
global inancial c isis. The agili y o supply chains
in he wake o he COVID-19 pandemic u he
uelled alk o esho ing o iendsho ing, wi h
heigh ened pe cep ions ha he wo ld is di iding
in o ading blocs. While ade be ween blocs
con inues o be eno mous, his ade has been
di e ed h ough mo e oundabou channels,
s e ching he links wi h he Uni ed S a es
(Fajgelbaum e al. 2024; Qiu, Shin and Zhang 2023).
Ano he challenge o US dolla dominance is he
e u n o he “T i in pa adox” o he 1960s. The
logic is ha a ese e cu ency coun y needs
o un balance o paymen s de ici s o mee
g owing wo ld demand o ese es, bu hose
de ici s can be iewed as a nega i e sign o he
ese e cu ency coun y’s economic heal h.
The cu en US adminis a ion’s obsession wi h
bila e al ade de ici s, and h ea s o impose
a i s o elimina e hem, uns up agains his
pa adox.3 A u he con adic ion is he h ea o
3 Inp inciple,e eni  adewe ebalanced, heUni edS a escouldp o ide
ese easse s o he es o  hewo ldwhileacqui ing o eignequi yand
o he isky asse s — and, indeed, his does happen o some ex en . Bu
inancial agmen a ionandgeopoli ical iskmaylimi sucho se ing
po olio lows(Ca alán e al. 2023).