Cold War ends, Currency Cold War begins

The war in Ukraine and the consequent sanctions applied by the West have once again raised the issue of the US Dollar’s global dominance and the extent to which this benefits America both financially, because of the increased demand for dollars, and politically. The historian Niall Ferguson, a thorough scholar of the history of money, has called the soft power obtained through the dollar’s dominance “more valuable than boots on the ground”.

As N.S. Lyons wrote recently, China must be looking at the West’s use of currency as a weapon against Russia with some alarm. Benjamin Cohen, a veteran academic of international monetary relations, says that there is “no question” sanctions against Russia would further incentivise countries such as Iran, North Korea and Venezuela to diversify away from the dollar.

Barry Eichengreen (professor of economics and political science at the University of California, Berkeley) wrote about this, pointing out that while the share of dollars in global identified foreign exchange reserves has been falling for a generation (it is now under 60% when it used to be over 70%), diversification has not been towards the euro, sterling and yen, the other longstanding constituents of the IMF’s special drawing rights (SDR) basket. In fact, while a quarter of the shift has been towards China’s renminbi, three-quarters has been into the currencies of smaller economies such as Canada, Australia, Sweden, South Korea and Singapore.

(You will remember that Singapore’s dollar was one of the currencies in the reserve basket proposed by Facebook for its Libra digital currency.)

Not all stablecoins are the same and, as Frances Coppola pointed out, stablecoins such as USDC in fact performed as safe-haven assets during the recent market turmoil, thus proving to be more trusted than cryptocurrencies.

There is a clear market demand for such stablecoins, otherwise they wouldn’t exist. Professor Eswar Prasad, writing in the MIT Technology Review on the future of money, said that “Bitcoin, the cryptocurrency that started it all, may not have much of a role to play in this monetary future” because stablecoins of one form or another might well be more desirable to the average person than volatile tokens for speculators. He also suggests that, rather than leading to a proliferation of public and private currencies that compete on a level playing field, the emergence of digital currency could make economic power more concentrated than ever.

If major currencies such as the dollar, the euro and renminbi are available to citizens around the world, they might well displace the currencies of many other nations. Similarly, and in my view just as likely, the digital currencies issued by multi-national corporations might replace weak fiat currencies by exploiting their ecosystems. Seriously, the currency cold wars are about to begin!

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Breaking Banks eCNY special

A really interesting episode of Brett King’s “Breaking Banks” podcast: a very comprehensive report on China’s Central Bank Digital Currency (CBDC) trial. With global experts including Richard Turrin, Henri Arslanian, Ruth Wandhöfer (as well as me, of course), vox populi on the ground in China and informed discussion about the lessons that might be learned.

BB China

Put your feet up, get a cup of tea and enjoy an hour of informed discussion on this important topic.

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Future Identity’s Top Five

Future Identity have very kindly listed “The Currency Cold War” as one of their top five books for digital identity enthusiasts. They said…

“The latest book from renowned digital identity expert David Birch is an exploration of the future of money. Birch is always ahead of the game when it comes to industry trends, so despite being published a few years ago ‘The Currency Cold War’ hits right at the heart of the current buzz around cryptocurrencies, CBDCs and digital money.

Birch argues that an overhaul of our current monetary system is inevitable, so we need to be prepared. Developing a global digital identity infrastructure is crucial to enable due diligence for e-money payment systems.

But Birch goes way beyond the technical and places digital currency into a much wider political and geographical content. He explores the political power conflicts and private company interests that have, or will, drive the development of new currencies and change money as we know it today”.

The intimate connection between digital currency and digital identity is at the heart of the strategic decisions that have to made by central banks and all other stakeholders, so I really appreciate Future Identity’s recognition of this vital aspect of the thinking around central bank digital currencies and digital money more generally.

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I was in an interesting discussion about digital currency today and was asked for a reading list, so here is the bibliography from The Currency Cold War

Birch, D. Identity is the New Money. London Publishing Partnership (London: 2014).

Birch, D. Before Baylon, Beyond Bitcoin. London Publishing Partnership (London: 2017).

Brunton, F. Digital Cash—The Unknown History of the Anarchists, Utopians and Technologists Who Created
Cryptocurrency. Princeton (Princeton, NJ: 2019).

Casey, M. and P. Vigna. The Age of Cryptocurrency—How Bitcoin and the Blockchain Are Challenging the Global Economic Order. St. Martin’s (2015).

Cooley, J. Currency Wars—Forging Money to Break Economies. Constable (London: 2008).

Davies, R. Extreme Economies: Survival, Failure, Future Lessons from the World’s Limits. Bantam (London: 2019).

Ferguson, N. The Ascent of Money: A Financial History of the World. Penguin (London: 2012).

Frankopan, P. The New Silk Roads. Bloomsbury (London: 2018).

Guttman, R. Cybercash—The Coming Era of Electronic Money. Palgrave Macmillian (New York: 2003).

Lynch, D. and Lundquist, L. Digital Money—The New Era of Internet Commerce. John Wiley (New York, NY: 1996).

Rickards, J. Currency Wars—The Making of the Next Global Crisis. Portfolio (New York, NY: 2012).

Rogoff, K. The Curse of Cash. Princeton University Press (Princeton, 2016).

Townsend, E. Beyond Blockchain: The Death of the Dollar and the Rise of Digital Currency. Independent (2018).

Wilson, P. Hostile Money—Currencies in Conflict. The History Press (Stroud, 2019).


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A Clubhouse chat with Europe, Asia and Pacific friends

A date for your diary if you are interested in digital currency.

Monday, 29th March at 7am UK time (8am Amsterdam, 3pm Hong Kong and 5pm in Sydney).

A Clubhouse hour with my friends from Europe, Asia and the Pacific Region.

I’ll be reading extracts from “The Currency Cold War” and discussing digital currency and its implications with guests including James Lloyd from E&Y, Victoria Richardson from the Australian Payment Network, lawyer Joni Pirovich, John Ryan from the Emerging Payments Association Asia-Pacific, Robert Allen from eftpos, Robert Bell from 86400 and many more.

For this discussion, I’m going to focus on these extracts from the draft of the revised paperback edition that I am planning for next year:

  • The E-Cash Genes: what are the technological pressures and how do they shape the “evolutionary tree”.
  • Light and Dark: the implications of non-fungibility for money.
  • Swerving around Swift: the impact on America’s ability to exert soft power.

With thanks to London Publishing Partnership and Provoke Management.

Remember, you can buy The Currency Cold War as an audiobook too now, so you can listen to it while jogging or whatever it is people do nowadays instead of sitting down and reading books properly.

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Implementation options

The wonderful people at the Journal of Payment Strategy and Systems, which is my favourite journal in the entire world, have kindly allowed me to post a PDF of my newest paper. It is called “Clouds, Chips and Chains” and it discusses in some detail the evolution of digital cash and the options for implementing digital cash as a central bank digital currency (CBDC). Please do download it, subscribe to this wonderful journal and send me your feedback CBDC good or bad: it’s an area I want to learn more about.

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Digital euro differentiation

The Economist covered Bitcoin reaching $50,000 with a story that touched on the digital euro. They noted that such a Euro-CBDC might bolster the international role of the euro (only a third as much is held in international reserves as the dollar, which dominates) and that such a system would be faster, cheaper and safer than sending euro payments through the current network of  “correspondent” banks. They were kind enough to quote me on one interesting area of potential differentiation:

Its main draw may be to offer a level of privacy that neither America nor China can promise, says Dave Birch, a fintech expert. 

From Token effort – Bitcoin crosses $50,000 | Finance & economics | The Economist:

America uses its financial system to enforce sanctions, China seeks control: but a European alternative that balanced the legitimate requirements of law enforcement and European principles of privacy (think GDPR for money) might be a globally desirable option. As I explained to the journalist, one way forward might be to use digital identity and pseudonymous wallets, with regulated financial institutions providing the links.

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Practical implementation of a CBDC

The Futurism Forum kindly invited me along to talk about the practical implementation of a central bank digital currency (CBDC) so I used my “evolutionary tree” to explain the development of electronic cash technologies and to suggest ways to use these technologies to build a CBDC. This presentation is now on YouTube so please do have a coffee, follow the link below and then give me your feedback good or bad.


As I mention in this presentation, I am very much in favour of implementing CBDC as a special case of a more generalised digital asset trading infrastructure and I am naturally curious to hear other informed perspectives. 

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Holiday reading (me)

The journalist Wendy Grossman reviews six books for your 2020 holiday season and kindly says of The Currency Cold War:

“If you believe, as Birch does, that these upheavals are inevitable, then it’s logical to consider how to manage the change. He proposes that the US and UK should develop a global digital identity infrastructure; create a global e-money licence; provide a digital diligence system that is alternative to and less exclusionary than the KYC regimes operating now; and create new payment systems that work with all of these. As he says in the book, and has repeated at numerous events since its release, government-backed digital currencies are not his idea, it’s coming from ‘serious’ people like Mark Carney, the former governor of the Bank of England.

P.S. Her reviews are very good. I’ve already ordered one of the other books from the list!

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