Published June 12, 2022
Article from the magazine “Conflicts”
The UAE has recently made headlines as the new international center for cryptocurrencies. China is already testing its digital yuan in several of its provinces, while the West continues to weigh its options. Can cryptocurrencies contribute to disrupting the geopolitical picture?
For a long time, key decision makers have been aware of the potential as well as the risks associated with digital assets. So, in October 2021, the G7 ministers considered the role of digital currencies in modernizing the financial system, as well as in accelerating national and international payments, to be relevant. However, they jointly insisted on the need to use them in a transparent, regulated and respectful of the rule of law policy, against a backdrop of rules that promote good economic governance.
Moreover, they seem to be overlooking the geopolitical importance of digital currencies, unlike China, which has seized the opportunity presented to it. Thus, while the G7 and the EU reflect on the digital currency policy that needs to be pursued, the digital euro is still in the “investigation phase”, China has already taken the lead. The People’s Bank of China has been working on a digital form of its sovereign currency since 2014. Today, Chinese authorities have already deployed a virtual version of the yuan in several provinces as part of a trial.
The future of finance?
China’s desire to take advantage of Western countries in terms of cryptocurrencies reflects Beijing’s determination to use its digital yuan in favor of the “regular” yuan, challenging the hegemony of the US dollar, which has no digital equivalent.
China, like Russia, and their partners in the Middle East, such as Southeast Asia, are not hostile to the fact that digital currencies can thus help the US dollar lose its role as a reserve currency, as it has. place after the Second World War, and thus contributes to the weakening of the game of US influence.
In this context, the United Arab Emirates has not failed to send a signal to the whole world that, in addition to strengthening its anti-terrorist financing policy, it has clearly recognized the strategic importance of demonstrating its openness to cryptocurrencies.
“The future belongs to those who represent it” It has tweeted Ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum after introducing a new body to oversee the introduction of digital assets in the UAE. This is not pure opportunism, but rather a strategic move by the Emirates to position itself as the future international center of cryptocurrencies and therefore become the financial center of the future. Building on its leadership in innovation, the UAE authorities do not seem to shy away from the inherent challenge of overseeing the virtual asset world.
In March 2022, Dubai introduced the Virtual Asset Regulation Law and created an independent body to oversee regulation, including licensing and management of virtual assets. non-fungible tokens (NFT) and cryptocurrencies. The UAE is already being considered as a future center for cryptocurrencies. The Emirates already has six cryptocurrency exchanges, including the world’s largest Binance, which have been given the green light by the Emirates authorities to operate as virtual asset brokers.
No wonder, given that the UAE plans to launch its first digital currency by 2026 and put its central bank in the top 10 in the world. The UAE has an important financial center in the Middle East (ie.e out of 190 countries, according to the World Bank) are therefore an obvious partner for the West, given the potential shown in the virtual asset sector. Americans and Europeans should consider engaging their Emirati partners, which are currently stress test of its cryptocurrency policy when considering designing the future of finance. This will facilitate knowledge sharing. And the UAE has recently demonstrated that they are serious about tackling any money laundering and financing of any illegal activity with virtual assets.
Anti money laundering
Together, the UAE leaders reaffirmed their determination to fight organized crime, fraud, money laundering and corruption. This is done in order to join the international community and neutralize the terrorist financing networks that threaten their region. The UAE has created a strengthened legal framework that is in line with the expectations of international bodies. Their Central Bank, as well as several ministries (of justice, economy) participate in them. In August 2021, after the opening of the Anti-Money Laundering and Terrorism Executive Office a few months earlier, specialized anti-money laundering courts were even established in Dubai and Abu Dubai. Customs, financial information departments and police services work closely together to ensure effective interaction.
Despite these encouraging signs, the Financial Action Task Force (FATF) placed the UAE on its “grey list” in March 2022. “extremely serious” will soon become obsolete in view of the even more convincing results they intend to obtain in the future. As for the fear of laundering Russian money through cryptocurrencies, then, of course, you need to be careful here, but you shouldn’t exaggerate it either. According to the latest market analysis, there are between $20 billion and $40 billion circulating in the Bitcoin market. However, the Russian market accounts for only a measly 0.14% of transactions. In any case, the Emirates authorities seem to be wary of this aspect and have created a solid legal framework.
Alliance already tested in geopolitical balance
For example, we have seen the power of an alliance with the Gulf countries in the fight against jihadism. The UAE and its regional allies have played an indispensable role in clearing out terrorist financing networks, fighting Islamist ideology and terrorists from al-Qaeda and ISIS, as well as Hezbollah. By deepening cooperation on the digital front as well, we will avoid the appearance of “black holes” in the future financial system, while ensuring that criticism from naysayers does not materialize. In another scenario, in addition to China, we could have another emerging crypto power that could decide the balance of the geopolitical balance.
And not necessarily in favor of the West. Thus, the UAE wants to take a proactive and strategic position, convincing skeptics of its determination to fight money laundering, hidden financial movements in the interests of Islamic terrorism, which they have repeatedly demonstrated, in particular by Libya, that they wanted to fight it systematically. The authorities of the Emirates demonstrate their interest in closer cooperation with international organizations (G20, G7 and the Gulf Cooperation Council). Obviously, and first of all, we are talking about the fight against the financing of terrorism.
But these reforms also reflect the pragmatism of the country’s leadership, for which the economic attractiveness and stability of a financial system that meets international standards are the same priority to reassure foreign investors and ensure the diversification of the national economy.