Crypto and Geopolitical Debt Dynamics: Can Digital Assets Enable or Undermine Dollar Supremacy?

The U.S. dollar’s dominance in global finance has long been underpinned by its role in oil transactions, deep liquidity in Treasury markets, and the infrastructure of dollar-based banking systems. However, the rise of digital assets—cryptocurrencies and Central Bank Digital Currencies (CBDCs)—is reshaping the geopolitical and economic landscape, challenging the dollar’s supremacy while introducing new risks and opportunities. This analysis explores how digital assets are being weaponized to circumvent traditional financial systems, the centralization trends in crypto markets, and the geopolitical strategies nations are adopting to either reinforce or undermine dollar hegemony.

Digital Assets as Tools of De-Dollarization

In recent years, cryptocurrencies have emerged as a critical tool for countries like Iran and Russia to bypass U.S. sanctions and reduce reliance on the dollar. According to a report by the Bank for International Settlements (BIS), tokenization and unified ledger systems are enabling cross-border transactions that bypass U.S.-centric financial infrastructure [1]. For instance, Russia has increased its holdings of euros, yuan, and gold while leveraging cryptocurrencies to sustain trade with non-U.S. partners [3]. Similarly, Iran has used stablecoins to facilitate oil exports and evade sanctions, demonstrating how digital assets can destabilize the dollar’s monopoly in global commerce [4].

The BRICS bloc has further accelerated de-dollarization through initiatives like the BRICS Pay blockchain platform, which allows member nations to transact in local currencies [3]. China’s Cross-Border Interbank Payment System (CIPS) and Russia’s efforts to tokenize its ruble are part of a broader strategy to create alternative financial ecosystems [1]. These developments signal a shift toward multipolar monetary systems, where digital assets serve as both a shield against Western financial power and a catalyst for regional economic integration.

CBDCs: A Geopolitical Chess Move

Central Bank Digital Currencies (CBDCs) are increasingly viewed as strategic tools to assert monetary sovereignty and counter the influence of private digital currencies. The European Central Bank (ECB) is advancing a digital euro to counter the risks posed by stablecoins like Facebook’s Diem (now Novi) and to preserve European financial autonomy [2]. Meanwhile, China’s digital yuan is being tested for cross-border trade, with the goal of expanding its global reach and challenging the dollar’s dominance in trade finance [1].

The U.S., however, has taken a different approach. Federal Reserve Chair Jerome Powell has explicitly ruled out a digital dollar during his tenure, prioritizing dollar-backed stablecoins as a means to reinforce the greenback’s global role [2]. This divergence reflects a broader ideological split: the U.S. and EU are competing to define the future of digital money, with the former favoring private-sector innovation and the latter emphasizing state-controlled CBDCs. The BIS’s withdrawal from the mBridge project—a multilateral CBDC initiative involving China, Hong Kong, Thailand, and others—highlights the geopolitical tensions inherent in these efforts, as Western institutions seek to prevent non-U.S. CBDC networks from circumventing sanctions [2].

Centralization Trends and Systemic Risks

While cryptocurrencies were initially celebrated for their decentralized ethos, the market has increasingly centralized around hybrid models that blend the speed of centralized exchanges (CEXs) with the transparency of decentralized exchanges (DEXs). Platforms like BYDFi’s MoonX exemplify this trend, catering to institutional investors who demand regulatory clarity and scalability [1]. However, this centralization raises concerns about systemic vulnerabilities. For example, stablecoins—despite their utility in cross-border payments—accounted for 63% of illicit transaction volumes in 2024, according to Chainalysis [4]. This duality underscores the need for robust regulatory frameworks to mitigate risks while preserving innovation.

The U.S. has responded with legislation like the GENIUS Act, which seeks to regulate stablecoins while promoting dollar-backed digital assets [5]. Yet, such measures risk stifling competition from CBDCs and decentralized alternatives. Meanwhile, the rise of AI-driven trading and security protocols is expected to further professionalize crypto markets, but it also amplifies the potential for cyberattacks. North Korean hackers, for instance, stole $2.2 billion in crypto in 2024, leveraging their collaboration with Russia to exploit vulnerabilities in blockchain networks [4]. These threats highlight the fragility of digital financial systems in a geopolitically charged environment.

The Dollar’s Resilience and Future Challenges

Despite these challenges, the U.S. dollar remains resilient due to its deep liquidity, the lack of viable alternatives, and the U.S. government’s ability to enforce sanctions. However, the erosion of trust in the dollar—exacerbated by inflation, geopolitical conflicts, and the rise of CBDCs—could lead to higher borrowing costs for the U.S. and a reallocation of global reserves toward euros, yuan, or digital assets [6]. For investors, this dynamic presents both risks and opportunities.

A diminished dollar could benefit nations and institutions that have diversified their reserves into non-U.S. assets or invested in CBDC infrastructure. Conversely, it could destabilize markets reliant on dollar liquidity, particularly emerging economies with high dollar-denominated debt. The key for investors lies in hedging against geopolitical shifts by diversifying exposure to digital assets, regional currencies, and CBDC-enabled platforms.

Conclusion

Digital assets are neither a panacea nor a threat to dollar supremacy; they are a tool that nations are weaponizing to advance their geopolitical agendas. While cryptocurrencies enable de-dollarization and CBDCs offer a state-backed alternative, the dollar’s entrenched role in global finance ensures its dominance for the foreseeable future. However, the centralization of crypto markets, the rise of illicit activity, and the geopolitical contest between the U.S. and its rivals will shape the next phase of this evolution. Investors must navigate these dynamics with a keen eye on regulatory shifts, technological innovation, and the geopolitical tectonics reshaping the global monetary order.

Source:
[1] III. The next-generation monetary and financial system, [https://www.bis.org/publ/arpdf/ar2025e3.htm]
[2] Central bank digital currencies versus stablecoins, [https://www.atlanticcouncil.org/blogs/econographics/central-bank-digital-currencies-versus-stablecoins-divergent-eu-and-us-perspectives/]
[3] Global de-dollarization: Is the dollar under siege?, [https://paymentscmi.com/insights/global-de-dollarization-us/]
[4] $2.2 Billion Stolen in Crypto in 2024 but Hacked Volumes..., [https://www.chainalysis.com/blog/crypto-hacking-stolen-funds-2025/]
[5] Stablecoin Regulation in 2025: State Power, Private Money and the New Monetary Architecture, [https://medium.com/coinmonks/stablecoin-regulation-in-2025-state-power-private-money-and-the-new-monetary-architecture-744a4355e133]
[6] Could America lose the global currency race?, [https://tdn.com/news/nation-world/business/personal-finance/article_dffa1707-5d19-519a-81fb-f75eb76d2fbd.html]