China, crypto and the dollar

China Dailyreported this week that a state oil company had conducted a natural gas transaction with French energy giant Total and that it had been settled in yuan. The deal, conducted on a Shanghai exchange, was the first of its kind and important enough for Chinese state media to tout its significance. This news is not typical fodder for a crypto newsletter that is, as regular readers know, about topics like Bitcoin and U.S. blockchain companies. But step back and you might see a connection.

In September, Foreign Policy published an article titled “China is quietly trying to dethrone the dollar” that explained how the country wants to establish regional corridors where global transactions are settled in a currency that is not the greenback. The goal here is not hard to understand. China views the U.S. as its main adversary and is looking to weaken the country however it can—including by diluting the dominance of the dollar, which gives the U.S. power over the world’s banking systems and lets it borrow money at rock-bottom rates.

China is not alone in this. Iran, whose evil regime has made the country subject to harsh sanctions, has for years sought to establish payment networks outside of U.S. control. Meanwhile, Russia—which is becoming a vassal state of China under Vladimir Putin’s disastrous leadership—is happy to embrace yuan-based payment arrangements, while also tolerating cyber criminals who rely on crypto to carry out ransomware and other hacking attacks.

All of this amounts to a type of economic warfare, and when it comes to crypto there are two important developments to watch. The first is a recent decision by Beijing to back Hong Kong’s push to become a global cryptocurrency hub by encouraging its state banks to do business with crypto companies in the territory. This is not a change of heart by China on the merits of crypto—recall it chased the crypto industry out of the country five years ago—but another effort to support transaction networks that don’t rely on the dollar.

The other thing to watch is whether more U.S. politicians will challenge the Biden Administration’s current push to hobble the crypto industry. The crackdown is partly in response to FTX and other crypto scandals, but it also feels driven by the U.S. Treasury Department viewing crypto as a financial network it can’t control. This could prove unwise. The rest of the world is going to build blockchain-based payment networks whether Washington likes it or not, and the U.S. should think instead about encouraging a domestic crypto industry rather than driving it from its shores.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

The value of digital land in the metaverse realm Decentraland has dropped by 90% from a year ago. (WSJ)

Leaked documents indicate Binance, which pulled out of China in 2017, kept a clandestine office in the country until 2019. (FT)

The Winklevii are reportedly planning to launch an international cryptocurrency derivatives exchange through Gemini. (The Information)

Chicago-based crypto exchange Beaxy shut down after the Securites and Exchange Commission accused it and its executives of registration violations. (Reuters)

The maker of the once-buzzy NFT game Axie Infinity is trying to turn the page on a disastrous year by improving its Ronin blockchain and adding game studios. (Fortune)