Sharper: Financial Technology

Innovations in financial technology, including new digital currencies and payment platforms, will transform the global economy. At the same time, these technologies have created new vulnerabilities for the United States during a period of global competition between open societies and authoritarian regimes over the digital future. CNAS experts are sharpening the conversation about the economic and national security implications of new innovations in financial technology. Continue reading this edition of Sharper to explore their ideas and recommendations.

Features

China's Digital Currency

China has made greater progress toward developing a national digital currency than any other major advanced economy. This development has critical ramifications for the Chinese Communist Party’s (CCP) rising digital authoritarianism, as Beijing seeks to influence the evolution of financial technology in the global banking system. In a new CNAS report, experts Yaya J. Fanusie and Emily Jin argue that Beijing’s efforts to develop a central bank digital currency will play a key role in driving the CCP’s digital authoritarianism.

The Razor's Edge: Liberalizing the Digital Surveillance Ecosystem

The use of new financial technologies has grown at a time when open societies and democracies are competing with authoritarian regimes to shape the digital future. In a recent CNAS report, expert Kara Frederick examines the global digital surveillance ecosystem and offers avenues for a U.S. response. Finding that the COVID-19 pandemic has accelerated global trends in digital surveillance, her report proposes four lines of effort for a U.S. response to the illiberal use of surveillance technology abroad, with implications for U.S. tech companies and consumers.

Financial Attacks on Democracy

New financial technologies have posed risks to America's national security and the integrity of the U.S. political system. The Russian government’s interference in the 2016 election received significant attention from policymakers and the media, but a critical aspect of the operation remains largely unreported: the cryptocurrency that funded it. A recent CNAS report outlines the role of cryptocurrency in the 2016 Russian election interference campaign, proposing specific recommendations for policymakers and the private sector to mitigate the threat of future cryptocurrency-funded election interference campaigns.

Financial Technology and National Security

How are innovations in financial technology reshaping the economic and national security landscape? "The fast-growing financial technology industry is claiming an increasingly important role in the broader financial services domain, from payments to lending, clearing and settling, new virtual assets and currencies, and beyond," CNAS experts wrote in a June 2019 policy brief. "These new financial technologies pose a range of threats and opportunities to U.S. national security."

Commentaries

Central Bank Digital Currencies: The Threat From Money Launderers and How to Stop Them

"Digital currency appears to be the future of money," argues Yaya Fanusie in Lawfare. "Efforts to merge monetary policy and instruments with computer-science-driven financial technology are gaining momentum globally. Unlike independent cryptocurrencies such as Bitcoin, central bank digital currency (CBDC) has a high chance of national adoption precisely because it would be issued by a nation’s monetary authority, with its value backed by government fiat and its use encouraged by public policy."

The Financial Footprints of North Korea’s Hackers

Efforts by the international community to prevent North Korea from obtaining and expanding its nuclear weapons program have largely failed. As North Korea continues to successfully evade U.S. and U.N. sanctions, what can the United States do? A new explainer video from CNAS explores recommendations for exposing the financial footprints of North Korea’s hackers.

Beyond TikTok: Preparing for Future Digital Threats

Kara Frederick, Chris Estep, and Megan Lamberth write in War on the Rocks that "without a smarter approach, American policy will fail to successfully confront fast-growing, foreign-owned digital platforms with systemic data and information security vulnerabilities. Prior to any future executive orders aimed at Chinese companies, the president—with input from the secretaries of state, commerce, and treasury—should articulate a set of principles-based criterion for this framework. This would help strengthen Washington’s broader efforts to offer an alternative to Beijing’s authoritarian, self-serving vision for the future of the internet."

Preventing the Finance of Online Sexual Exploitation

"The ongoing COVID-19 pandemic has contributed to increased online activity and more digital transactions for both licit and illicit purposes," writes Jason Bartlett for CNAS. "Greater online activity in the midst of more tenuous economic situations poses risks to populations that are already vulnerable to trafficking and online exploitation. As more illicit actors operate online, the U.S. government can expect to see digital currencies used as tools for facilitating the financing of human trafficking."

Don’t Sleep on China’s New Blockchain Internet

"U.S. national security policymakers are working aggressively to push back China’s global market advance in 5G and artificial intelligence technology. Meanwhile, the Chinese Communist Party (CCP) is progressing unfettered in a parallel technological campaign: expanding global blockchain infrastructure," Yaya Fanusie warns in Lawfare.

Post-Pandemic Tourism Could Boost China’s New Digital Currency

"China finds itself in a strong position to release its central bank digital currency, the eCNY, following successful trials," writes Francis Shin. "The completion of the eCNY trials coincides with the rollout of the Covid-19 vaccine, and now that countries can ease travel restrictions and the hard-hit tourism industry can recover, China’s outbound tourism could become a catalyst for the global usage of the eCNY."

In the News

Featuring commentary and analysis by Yaya J. Fanusie, Emily Jin, and Jason Bartlett.