Ian Bremmer on Political Risk & the Crypto Economy
Eurasia Group's founder on fintech & cultural diplomacy
This interview was published by Chainmail, a prior newsletter covering the politics of digital finance.
Next up in Chain Mail’s interview series on the geopolitics of crypto is noted political scientist and commentator Ian Bremmer. (You can find Chain Mail’s first interview with Sebastian Mallaby here.) Bremmer is the founder and president of Eurasia Group, a leading political risk and consulting firm. He is the author of eleven books, including his latest, The Power of Crisis: How Three Threats—and Our Response—Will Change the World. You can follow his commentary in a variety of major outlets, including GZERO Media and on Twitter. What follows is a lightly edited transcript of our interview conducted by email.
Your new book, The Power of Crisis, outlines three major challenges—pandemics, climate change, and digital tech—that might push us to forge a new global order. How does the rise of new forms of digital money fit into your schema? Will the regulatory pushback against “Big Tech” or state competition in the digital asset space deepen or extend great power conflict?
In my view, among new disruptive technologies, digital assets are less of a concern. In the 20th century, nuclear weapons threatened the global order so much that even two great powers that wanted to defeat each other badly nonetheless worked together to limit their development, production, stockpiling, and proliferation. Today, there are other technologies that also have the potential to existentially disrupt the international order—biological weapons, lethal autonomous drones, offensive cyber capabilities, and even disruptive AI algorithms.
If they ever got to a point where they could displace sovereign currencies, crypto assets could hypothetically pose such a danger (and/or opportunity, depending on your worldview). But frankly, I view that as exceptionally unlikely and nowhere close to as near-term a possibility as the other disruptive technology risks described in the book.
You've said that cryptocurrency will never replace traditional money but that governments can't punt on the challenges of crypto. Recently, we've seen a big push by the Biden Administration, the Federal Reserve, and the SEC to both regulate and (in the case of the Fed) potentially innovate in digital currencies. What do you make of this whole-of-state approach, especially as the European Union and China turn a cold shoulder to crypto?
I see it as an extension of the US government’s long-standing efforts to ensure that it maintains a sovereign monopoly on the production, distribution, and regulation of money. For understandable reasons, Washington doesn’t want to lose control over monetary policy (or, for that matter, financial stability). By the way, China shares that interest, although I’m not sure I’d say they’re “turning a cold shoulder to crypto.” Yes, they’ve banned cryptocurrencies and Bitcoin mining, but they’ve also identified blockchain as a core technology (being developed through their Blockchain Services Network) and are forging ahead with a central bank digital currency (still miles behind existing digital transactions platforms like Alipay and Tencent in terms of speed and scalability, but way ahead of other CBDCs in development).
The point is that as nation-states, both China and the US want to retain control over their currencies. The difference between the two is that China also wants to tightly control innovation in the digital currency space and potentially appropriate the data it produces, whereas the US is more relaxed about promoting innovation as long as consumers are protected.
Should policymakers in Brussels and Washington be wary of a digital yuan? Does China's primacy in developing a central bank digital currency (CBDC) give it more geopolitical leverage, or is this threat overrated?
Potentially. China’s modus operandi has always been to embed its values in the technology it exports. So phones come equipped with tools for surveillance, for example, which serves Chinese state intelligence. It’s also a fringe benefit for Beijing’s authoritarian allies when they use Chinese vendors. A Chinese digital yuan that comes without the norms and standards the West wants to see would serve similar purposes, giving Beijing a geopolitical lever while providing their spy agencies and tech sector with access to more data they can use to further the government’s political stability.
The goal of the US and its European allies here should be to build an alternative ecosystem that reflects Western values—transparency, free markets, rule of law, etc. That is indeed how the Biden administration is thinking about this. The problem is that it can’t be the US alone; they have to get other countries on board. That said, there’s not much danger of a digital yuan threatening dollar dominance.
Will we see fewer countries, like El Salvador or the Central African Republic, experimenting with crypto adoption following the crash in digital asset markets?
I sincerely hope so. It’s irresponsible for any leader to gamble their country’s resources on such volatile assets. Alas, I suspect that high inflation, slowing growth, and unsustainable debt levels will bring more anti-establishment leaders to office willing to “try anything,” some of whom will no doubt be happy to roll the dice on crypto adoption.
Global crypto remittances grew by 900 percent last year, and this year the Latin American crypto exchange Bitso has already processed $1 billion in US-Mexico remittances. How might crypto, or fintech more broadly, disrupt global financial flows to poorer countries? Could advances in fintech give these countries (even a small) leg up?
I hope fintechs are able to disrupt the predatory and regressive practices of corporations that have long charged exploitative fees to some of the world’s poorest people for transferring relatively small sums of subsistence money. In an ideal world, that business model would already have been undermined by international development organizations and/or NGOs. But technological innovation, including through the blockchain, should absolutely pitch in.
You called 2021's nonfungible token (NFT) market frenzy a form of “tulip mania”—and it's hard to reject the comparison. But, as Dutch diplomats have shown, tulips have their place in global politics. My question, stemming from that, is how might NFTs shape cultural diplomacy? Ukraine is particularly adept at using tech to raise support, launching NFTs to issue war bonds and preserve its history amid the invasion. Meanwhile, the United Kingdom's Chancellor of the Exchequer Rishi Sunak has asked the Royal Mint to create his country's first official NFT. Is all of this merely a fad?
Sorry to sound like a broken record but yes, I’d say NFTs are just a fad. Ukraine’s innovation has been in winning the information war through every digital means available, even against a comparatively wealthy and tech-savvy government like Russia’s. But NFTs aren’t the story here. Auctioning NFTs is effectively no different than auctioning a stamp, which Ukraine also did quite successfully, and winning Eurovision was a far more effective form of soft power. Yay Eurovision.
What, in your view, is lacking in the discussion surrounding digital assets? What might policymakers, pundits, and investors be missing?
It’s the less hyped applications that could be the most useful and ultimately end up integrated into business operations—using blockchain and NFTs to make supply chains more transparent, traceable and streamlined (i.e., helping mitigate future chip/other strategic product shortages) or to reduce fraud across a host of industries (which costs the global economy about $5 trillion annually). Decentralized governance models built on smart contracts (e.g., DAOs) could be an interesting way of re-introducing broad participation into political systems, though they’ll probably only take hold at very local levels. The US could be more forward-leaning on integrating this kind of technology into its democracy promotion efforts (NFTs have already been used to counter online censorship in China). Policymakers need to allow these innovations to happen even as they curb the frothiness of more speculative use cases.