Announcer (00:01):
Due to the themes of this podcast, listener discretion is advised.

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Lock your doors, close the blinds, change your passwords. This is Secrets and Spies.

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Secrets and Spies is a podcast that dives into the world of espionage, terrorism, geopolitics, and intrigue. This podcast is produced and hosted by Chris Carr.

Chris Carr (00:37):
On today’s podcast, I’m joined by former CIA analyst Yaya Fanusie, who specialized in counterterrorism and illicit finance. He joins me today to discuss the national security implications of digital currency. I hope you find this episode interesting.

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Thank you for watching. Thank you for listening. Take care.

Announcer (00:55):
The opinions expressed by guests on Secrets and Spies do not necessarily represent those of the producers and sponsors of this podcast.

Chris (01:18):
Yaya, welcome back to the podcast. It’s great to have you on, and it’s been a little while. How are you?

Yaya J. Fanusie (01:24):
Chris, I am great, and it’s wonderful to be here. I don’t remember, but I think you go back to our early podcasting days. I’m thinking 2015 or 2016 or something like that, so I appreciate the time.

Chris (01:41):
Yeah, thank you. Thank you. You were my third ever guest on the show, which was fantastic. And yeah, the show has evolved over the years, and now we’re on YouTube, which we weren’t in the old days. It’s amazing how things have gone, and we’re on season 10 now, so it is crazy.

Yaya (01:58):
Wow, wow. And so much. Yeah. So just to bring you up to speed, because when we first talked on that third show, I was at a think tank doing a lot of research and writing on illicit finance and national security. I was on my first podcast at that time, and now I do a lot more in podcasting and work more in the digital assets, cryptocurrency, digital currency space. I’m sure we’ll get all into that.

Chris (02:32):
Yes, indeed. Today is very crypto, illicit finance kind of space. It should be very interesting. So you wrote this really interesting paper called The Programmable State, which has been published by Lawfare, and you wrote this with a lady called Emily Jin. So I was wondering if you could talk to us a little bit about that paper, what motivated you and Emily to write it, and also how you went about researching it as well.

Yaya (02:56):
Thank you, and thanks for mentioning Emily. Emily Jin is my co-author for that paper. That project is the result of a few years of research because back in 2021, I believe, we released our first paper on China’s central bank digital currency. So that was way back in, like I say, 2020 or 2021. At the time, we were both part of the Center for a New American Security, a DC-based bipartisan think tank on national security issues. We were looking at what was happening back then, which was that China had unveiled or had started to unveil its own digital currency. This was something that a lot of people were wondering about. It’s this new technology. So we started researching it, and then after a few years, there was sort of a lull.

(03:49):
China had announced it, and people were writing about it. What does this mean? Really the issue of digital authoritarianism is what people were thinking about, because if the Chinese state has a digital currency, does that mean it’s going to control its population? So that’s what people were wondering about. But when the pilot — so China’s digital currency, this is something run by its central bank, the People’s Bank of China — and in the years between, let’s say, 2022 and 2024, it started to unveil these pilots, piloting its digital currency. I can explain more about how that works, but we were interested in finding out, well, how are these pilots working? What is happening and what are the national security implications for the US, for the power of the Chinese party? So we decided to take a deeper look. Earlier this year we published a follow-up report called The Programmable State.

Chris (04:46):
So for listeners who find this topic intimidating — and I’ll put myself in that category — to do with finance and digital currency, I’m like, wow, what is this about? So could you provide us with just a simple explanation of what digital currency and central bank digital currency are?

Yaya (05:01):
Yeah. Well, I’ll start with what you already know and what a lot of people already say. They’ll say, “Hey, I’ve been using digital currency for decades. I’m banking online. I have mobile money. I’ve been using digital currency.” So what’s new about this? What I would say is that what has happened more recently is that technology has allowed a new format for digital currency, we could say — what we now call digital currency.

Now I’m going to actually use a term because I think this is more where the conversation is going in policy circles: “digital asset.” Digital assets are now becoming a term among finance people, regulators, and government. So I’ll explain that. A digital asset is simply a digital representation of value that is typically on some sort of distributed ledger. A distributed ledger is just software where the record of transactions can be viewed by anyone, or can be viewed by multiple people. Everyone has access to this ledger. So that’s a digital asset.

But a central bank digital currency is a little bit different. It could be a digital asset, but it is basically when the central bank decides, “We’re going to directly issue our money digitally, and we’re going to make it available to banks or make it available to the consumer.”

(06:25):
That hasn’t existed, because before, the digital access we have is usually through the private banks. You go to your private bank, you go to their website, and then they manage the transactions. It’s not that you actually have a digital pound or a digital dollar. It’s not really digital. It’s really just the bank trying to represent it.

So in recent years, what has happened is central banks have said, “Maybe we could be more efficient with our monetary policy, with how we view the economy.” So a central bank digital currency has been something that several central banks have been pursuing. But it’s different from Bitcoin because — and gosh, please, I know I could be going too technical.

Chris (07:24):
No, no, it’s good. Go for it. And explain just a little bit about how this is different from Bitcoin, and maybe even go into what Bitcoin is, just in case there’s still some people out there who are —

Yaya (07:31):
Yeah. So Bitcoin is a digital asset. Bitcoin is a public system, a distributed ledger system. It was the first blockchain-based system, or first blockchain really, to provide a crypto asset.

So what does that mean? Think of Bitcoin as basically a software protocol. There’s something called the Bitcoin protocol, and the software does something that was never able to be done before on the internet. Before Bitcoin, if you wanted to send money digitally, you had to use some sort of centralized third party, like a bank, in order to manage that, in order to debit your account and then credit someone else’s account. You had to have that.

Bitcoin was this really ingenious invention to create a system where the transactions are recorded on a ledger that is distributed across computers that anyone can access. In order to send a transaction, you just need to access that software, access your account, and you’re able to send or broadcast your transaction, and the record is kept. So Bitcoin is just a representation on that ledger. One bitcoin is on the ledger, and you can transfer that bitcoin to someone else that’s using the ledger, or half a bitcoin or 0.003.

(08:50):
All of it is kept. This is public software that anyone can access. It’s not issued by government. The value of a bitcoin is based on demand — what other people are going to pay you in dollars or in pounds or in euros in order to access it. So it’s not the same as your regular currency. It’s totally independent.

Now, central banks — Bitcoin was unveiled in 2008, and in 2009 it was deployed — and central banks around the world noticed it. Actually, the UK was one of the early central banks that started to study Bitcoin, not because they wanted to reproduce it, but because they said, “Wow, this is a different way to keep track of a financial record. There might be something here. Now, we don’t want to do Bitcoin because Bitcoin no one controls, and there’s illicit finance. We’re not going to do that. But why don’t we study the properties of this system, of this distributed ledger system, and maybe we can implement parts of it for our own new digital currency system.”

(09:42):
That’s what’s happening with China, or what China has started to look at. Although the architecture — to get a little bit technical, and some people are going to say, “You have to, don’t mess up this particular point” — China’s digital currency is not a fully blockchain-based system. I just have to say that. It’s more centralized.

But anyway, with China’s digital currency, we started to look at it because we said, what does this give the state? What does this give the CCP to switch to this? A lot of people would say China has a very established financial technology sector — WeChat, Alipay — and those are private firms that have mobile money, digital money. People would say, “Why does China need to create some new pilot of the digital renminbi, or the digital yuan?” It’s called the e-CNY, the official brand of this digital currency.

What they don’t realize — we found this in our early research — is that the Chinese government, especially the central bankers, were saying these private tech companies have too much influence and power. They’re private companies. They’re not run by the state. Of course, they can be influenced by the state, but they have access to data. They’re doing things that maybe we don’t want them to do. They’re too big to fail. So several years ago, the central bank started to say, “Let’s create our own system. Let’s create some infrastructure that the state will have more control over, that we can use to access data.”

(10:43):
And way in the background — here’s something else, and this is what we found in our research — the Chinese Communist Party several years ago had put out a plan for financial technology, what we call FinTech, a FinTech development plan. In that plan, a few years ago, it said that the aim of the state was to create eventually a sort of national data warehouse, with the idea that data in the society, data in business, data should be useful for state planning, for economic development, for policy, for lots of other things — for services, service delivery.

So I would say that — this is my take — China started to see that data is going to be a resource. In fact, Xi, the head of the CCP, said that data should be a factor of production, seen as just like energy, gas, electricity. I even say that data is the new electricity. Every application runs on data. In a digital environment, you need data. You need to manage it. You need to use big data analysis. And now, with artificial intelligence, with AI, it’s key. AI is driven by data.

So if we think strategically that data is important, what’s happened is that China has tried to create a currency where the infrastructure is more overseen by the state, and that means that the state could have more control. Maybe I’ll pause there because I’m going a little bit too deep here.

Chris (13:16):
No, no, no, no. Carry on, because I think that’s perfect. And yeah, go into surveillance and control and talk about that.

Yaya (13:21):
So I should probably describe, because viewers and listeners are probably wondering, “How does this e-CNY work? How does China’s digital currency work, and why do we call our paper The Programmable State?”

There’s this two-tier system. What happens is the central bank, the People’s Bank of China, creates this digital currency natively. It’s its currency made digital. But it doesn’t cut out the private banks, because most people go to private banks. That’s how you usually go. There are some state-owned banks, but really it’s the banks — the private banks, not the central bank — that people interact with. So they distribute the digital currency, the e-CNY, to the private banks, and then people can access it. They can download wallets, and it’ll be like a central bank wallet. But in order to get the e-CNY, they have to open it up in one of the banks.

So this two-tier system means that even though the app you’re using may be connected to your regular bank, the digital asset itself and the data that’s around it really belong to the government. It’s their money.

(14:30):
And it means — just take a step back — what that means, why that’s different. Before, let’s say I’m a Chinese citizen and I’m suspected of doing something illegal. What happens — and this is not just in China; this is actually what happens all around the world — is that banks file suspicious activity reports. Maybe some of us don’t know this, but banks are always monitoring what their customers do. So if something happens, like a transaction seems very odd — you’re all of a sudden sending out more money, and it’s going to an account that you’ve never sent to before — that could trigger an alert. Maybe that’s not suspicious activity, but maybe there’s something else that happened. Maybe you have a transaction with a known fraud store or something.

So a bank will then write a suspicious activity report, and that goes to the financial authorities. That goes to the government. Again, this is all over the world. This is in the US, the UK, Europe, China, everywhere. And then what happens is the government can follow up on that. Maybe they’ll investigate. Maybe they’ll go back to the bank and they’ll say, “Tell us more information. Give us everything you have on this individual.”

They don’t know, because the government doesn’t have access to the data itself or the accounts. They have to go to the bank, so they’re removed. Everyone talks about Big Brother. Everyone says, “Oh, the government is surveilling you.” The honest truth is that the technology does not really allow the government, any government, to have a 360, 24/7 view in real time of anyone’s transactions. They’re not monitoring. They don’t have direct access because the banking system, the technology, is not set up that way.

(16:12):
So there are these layers, and the government has to go through this process. Now, of course, in China they can get the data quickly. It’s like, “Hey, give us the data just because we said so.” Here, in other societies, they have to have a subpoena or they have to go through a process.

But what this new technology offers is maybe to cut out the middleman in some ways, because you are dealing with a digital currency that essentially is government infrastructure. So the central bank is going to have access to the data. Now, they would say that they’re not going to have access to the names, that it would be anonymized. That’s what they have said. It’s not that they know the names, but they can get the names easily, because if there’s suspicious activity, they can go and say, “Hey, what’s the name?” and then attach it.

What do they do with that? What if the person is innocent? Those are policy questions and privacy issues. But the setup is different now. The setup is such that the government can now analyze swaths of data.

Let me give you some examples of what’s possible, and this could be for legitimate concerns. Managing your budget expenditure, for example. In the pilot for China, they have not just deployed this digital currency and now everyone’s using it. In fact, it’s a small number of people. Some people I know — we have some friends in Beijing and other places in China — are like, “We’re not seeing this. Where is this pilot?”

It’s given strategically to certain provinces, certain cities, certain test cases. So it’s not mass adopted. But what we found in our research — this is because of Emily. I’m not even a China expert per se. I don’t read or speak Mandarin. But my co-author, Emily, speaks Mandarin and understands the Chinese political system, political history, et cetera — is that we looked at press reporting of all these pilots that were coming out. Now, obviously yes, it’s influenced by the government, but these press reports would say, “Province such-and-such is partnering with the central bank and is now paying its employees in digital currency.”

(17:54):
Why is that interesting? Because now, let’s say you pay a budget to an agency in this e-CNY. Now the government can know how much of it was spent. Where was it dispersed to? What is the rate of the budget? It’s no longer a thing where you have to wait for a report to come back. The government can see because it’s its own infrastructure.

The other thing that is interesting — and some would say that’s a positive — is that you can have better accountability if you’re a government: where the spending is going, when the employees are getting paid, how much they’re getting paid. So this could be a double-edged sword.

But here’s something that we found interesting in our report. We found a lot of these pilots are experimenting with programmability. I would call this, in a sense, “smart money.” Programmability is something very new that only exists in the digital currency space.

Here’s a rudimentary example of one of the pilots. One of the pilots is very simple. It’s a pilot where the money, the e-CNY, this digital yuan, could be used for educational services. There is a system where you have a wallet and you pay the service provider, but the funds — this digital yuan — go into an escrow account, and the money does not get paid until the service is delivered, and it’s automatic. Apparently, there had been a problem in China with people paying for services and then not getting these education services, not getting the service.

(20:01):
So this programmability — because with this software, you can now create the wallet and the functionality so that you pay, but the funds don’t go to them until they come through — that doesn’t exist now. You may think, how could you do that today? You hire someone to do a contract; maybe you just withhold the payment and you can go back legally. But this is a system where you do give them the money, and then it’s held and then it goes to them. That is just one feature.

There are other features where the government was trying to get people to shop locally and to promote more tourism. So they would distribute the money almost like a coupon, where the money could only be spent at a venue in this particular city or province, or it could be spent only during a specific time. So you’re giving money features that we don’t have today. We can’t say, “This dollar in my Cash App account or my Venmo can only be used for Mexican restaurants.” That doesn’t exist. But with programmability, you can now program what the money is spent on, or what it can’t be spent on.

Chris (21:12):
Interesting.

Yaya (21:13):
It’s so interesting. And there are many of these pilots. We’re looking at this, we’re seeing the reporting, and we’re thinking, “Wow, okay, this is interesting, but what’s the downside?”

Chris (21:25):
Well, you said you won’t be able to buy certain books. I suppose that would be one of the downsides.

Yaya (21:28):
I mean, we started to think about that because we saw one thing, which was that they were rolling these pilots out around government services like elderly payments, social security services, subsidies for your bills. They would have a card, which would usually be your ID card as a social citizen or something, or to get social services or funds. They would say, “Oh, well, we’re going to put it in e-CNY.” So now it’s all connected. It’s your identity with this program, but also they’re able to track the money potentially.

We started to see that the limits of this programmability are only set by what you program. So, for example, what if I want to say that your origin, your national origin — let’s say you’re from a distinct ethnic group, or you’re a foreigner. Maybe, as a foreigner, I could put certain blockages in place, or I could tag your payments a certain way. I’m not saying that they’ve done this, but this is possible.

Chris (22:39):
Yeah, I know in China you had the social credit situation, and also there is repression against the — well, I pronounce it the Uyghurs. Yeah. And so if you don’t fit into a certain category, suddenly the government could, in theory, set up some sort of two-tier system.

Yaya (23:00):
Well, let me drive this point home. This kind of relates to the Uyghurs. This is something we found from a few years ago. This is an old news story that most people don’t know about in Western countries. So Chris, you ever shop at — probably not you, but maybe your wife — H&M? Ever heard of H&M?

Chris (23:19):
Oh, yeah, I know of H&M. I actually did buy a jumper from H&M.

Yaya (23:22):
Okay, I see. I shouldn’t presume.

Chris (23:23):
It’s been a while.

Yaya (23:27):
But anyway, everyone knows H&M clothing. They’re European, maybe Swedish — I forget. Are they Swedish? I don’t remember. A few years ago, H&M had posted on one of its blogs a statement saying they were concerned about the supply chain of their clothes, and they had a statement about not having clothes that were sourced from — it’s the Uyghurs from a certain province in China — and it was something they put up. And so this was a big topic several years ago, and several months later, might’ve been even a year later, I don’t know if the Chinese government knew about it, but they started a campaign to digitally sanction, I would say, H&M. And here’s what they did. Now, this didn’t involve the digital yuan, but I’m bringing this up as a demonstration of what’s possible.

(24:23):
So what the government did was it ran an anti-H&M campaign that was all digital. And what they did was they removed H&M digitally from services in China. For example, if you wanted to use the Chinese version of Uber to go to H&M in Beijing — it’s a store you’ve been to all the time — and you would look it up, you’d say, “Okay, I’m going to H&M” — not valid. Now, the store is still there. The store is still there, but it was removed. They removed it from the main e-commerce site. They removed all H&M items from the site. And this campaign lasted for several months or maybe over a year — I don’t remember exactly — until they reversed it. And there was a media campaign. People were saying, “Down with H&M,” that sort of thing as well.

(25:09):
But what did that show you? It showed you that the state then used the digital instruments within its reach to sanction you, to go after you for crossing the line for them. And so what I started to think was, so let’s look at this new digital currency. If, for some reason, let’s say someone in the NBA tweets about, “Hey, free Hong Kong,” or something, it’s possible, if the digital yuan were to be in place now, maybe you could no longer buy NBA tickets in China. Maybe your wallets for NBA in China would not work for a week until you take down that statement, until you apologize. Then your wallets will work, because that’s not as possible with current finance. Even what we think is digital finance, the government can’t just easily — there’s not one button and all of your accounts will freeze. It doesn’t work that way. The e-CNY — again, I’m not saying that they are doing this — but what I’m saying is this is a move towards an infrastructure where the state would have more control over wallets. It would be digital, and it’s its own infrastructure. And these are the things, this is why we say a programmable state, where there’s the potential for abuse and control and authoritarianism.

Chris (26:31):
Let’s take a break and be right back with more.

(26:49):
Trade with China is an important thing. And will China change the rules of trade so then people will have to start working in this way? And also, could you get maybe other countries starting to imitate this system as well? Could it be the kind of beginning of a snowball effect?

Yaya (27:10):
Yeah. So two great questions, and the first one is the issue of how could China sort of enforce this? And even though this digital currency — the CBDC, as we call it, central bank digital currency — is not mass adopted, we saw some signs of what I think is the intent to make it the default or the primary system, even though it’s not right now. This was during the Winter Olympics a few years ago. If I remember correctly, at the Winter Olympics that were in Beijing, in the Olympic Village you could only use the e-CNY, their CBDC, or Visa. And if I remember correctly, that was because Visa was a sponsor of the games. So Visa sponsors the games, so they’re going to make sure, “Oh no, you’re going to have to use Visa,” but you couldn’t use anything else — no Alipay, no WeChat.

(28:12):
And what if you’re Visa? I don’t speak for Visa, but I’m thinking for Visa you may say — because I think some people were thinking — “Well, this is competition for Visa. This is the e-CNY.” But the government’s response would be, this is just our national currency, so it’s always going to be available. This is our sovereign currency. So you can’t have Visa have a monopoly and say, “Oh, I’m the only form of payment.” The e-CNY is going to be there. It is China’s real default payment system. I think that’s what they’re going towards. And I think companies — you’re talking about trade — those companies that are going to be working or operating in China, right now the e-CNY is, again, very limited. It’s not available for everyone. But I do think the world is going to be one where, if you’re in China and you’re operating, you’re going to have to use it, I think, eventually. I think that’s the trajectory, maybe not next year. So you’re going to have to grapple with this as an international organization: where is my data if I use this as opposed to other systems of payments? Am I giving more data to the government potentially, or what are the protections? That’s a thing.

Chris (29:25):
Well, and freedom of speech implications too. I know certainly in the US and UK and other parts of Europe, it’s becoming more popular for brands to get involved in certain kind of conversations. And so should a conversation come up that’s maybe not taken well by the Chinese government, is that going to cause an issue?

Yaya (29:50):
Yeah, yeah, absolutely. And to your other question about other countries adopting it. So this was one of the things in our paper that we really thought about towards the end, because there’s something called the Belt and Road Initiative.

Chris (30:09):
Yeah, Belt and Road Initiative. Yeah.

Yaya (30:11):
And so that’s China partnering and working on infrastructure for other countries around the world — trains, bridges, helping with infrastructure — as a way to also increase the trade with these countries and extract resources, do development deals, et cetera. And so there’s a concern that for all countries now — and maybe we should probably get into this — what this means for other countries that are thinking about innovating in their technology with finance, innovating in payments. Other countries are looking for better ways to manage their own financial system, and they’re also thinking of better ways to do cross-border trade, cross-border transactions, so international trade. And if you’re doing that right now, I won’t say a bunch of things, but now there are new alternatives that we didn’t have 10, 15 years ago in the world to do trade in a different way. And the e-CNY — let’s sort of put it aside, because e-CNY is a fit, but not like most people think.

(31:16):
So most people think when you talk about this — when I would go onto the Hill and talk to staffers in Congress or members of Congress — their first concern when they would first learn about this is, “Oh, is this going to compete with the dollar? Is this going to diminish the demand for the dollar? Are countries going to want to use this?” And I would say they’re asking the wrong question. That’s not what China’s doing. So China has controls on its currency that limit how much of its local currency can go abroad. So there are already controls. China’s not trying to spread its currency, this e-CNY, and make everyone else have it. And it’s not trying to compete with the dollar in the way that the dollar is supreme, where most banks need the dollar — they need it for trade. It’s sort of the reserve currency, the international reserve currency.

(32:09):
China’s not trying to make that with a digital yuan. What China is doing is building other payment alternatives that it hopes will provide a different way to do cross-border trade without going through the regular banking system, which the United States dominates, where the dollar dominates. So it’s not to compete to say, “Oh, I’m going to make the yuan now the most desirable currency over the dollar.” No, it’s to say, “Okay, let’s use technology and let’s set up some new systems for trade that could involve this CBDC, this new digital currency.” But I think what they’re thinking more about is that if I can get your country — let’s say, I don’t know, UAE or Thailand or Saudi Arabia or just name your country, or Ecuador, Mexico — to have your own central bank digital currency, and I have my central bank digital currency, then when our business people do trade, we create a different platform.

(33:10):
You don’t go to your bank and then do a wire transfer and go through the SWIFT system and have to do sanctions checks to make sure you’re not on the US sanctions list before the transaction goes through. That’s how international wires work. That’s how cross-border transactions work. How about we do this pilot system — and there is this pilot system that they’re doing; it’s called mBridge — and just if you want to know, there’s more on that we could talk about. We’ll create a pilot system where we’ll simply send your CBDC to this new platform, which is a blockchain-based distributed ledger platform, and then it’ll be converted into digital yuan or the e-CNY for me in China. And then that is the trade. You’ve paid it. We’ve gone through that system. You had a CBDC, you paid it in, and then the buyer receives the CBDC, or the seller receives the CBDC, in their local currency.

(34:01):
That’s a new type of system that would allow us to do international trade without going through the regular banking system. And that’s being piloted. And the e-CNY is somewhat a part of that. It’s part of this broader thing. And before people wonder, “Am I being — is this all nefarious?” The thing is that pilot countries that are friendly to the United States are interested in these types of things, because no one, if you’re not in the US, wants to be so dependent on the dollar. Even in the UK, as I remember several years ago, the previous Bank of England governor gave a speech where he said the reliance on the dollar isn’t good for the international economy. We should find alternatives. So for all countries, correspondent banking is getting more complicated and pricey. So most countries are looking for different ways. That’s why CBDCs have become a thing to begin with. I won’t go down the rabbit hole on this, but I have to say it because some of your listeners might be thinking of this.

(35:07):
The conversation is now changing because now the world is looking at a different type of crypto asset: stable coins as a way to do trade. Stable coins are simply cryptocurrencies that are backed by a regular asset like a fiat money, fiat currency. So a US dollar stable coin is a crypto asset. It’s on a distributed ledger. You can send it 24/7. You can program it; you could program it, you could do all these things, but it’s still a cryptocurrency. But its value is always $1 because it’s pegged to that amount. And there are dollars in the background that have been put in reserve, and now you can use this crypto asset, send it anytime, do a bunch of different things with it. It’s auditable. You can kind of see the transactions, which you can’t with regular money. You can’t go to a blockchain and look at regular money.

Chris (35:57):
Yeah. So does that make then that transaction more reliable, related to something kind of physical?

Yaya (36:03):
I would say it makes it less volatile because the price value of it is set. Whereas with Bitcoin, if I send you — let’s say I send you one Bitcoin, which I wouldn’t do because one bitcoin is worth like $130,000 — but let’s just say for fun’s sake I send you one Bitcoin, the value may drop and so you don’t get the same value. A stable coin uses the same infrastructure, the same technology roughly, or similar technology, but when you go to redeem it, you know that the dollar is going to be worth the $1. So you could say it’s more stable in that sense.

Chris (36:46):
Yeah, got you.

Yaya (36:47):
So stable coins have become very popular outside of the US — dollar stable coins — because in places where they have less access to banking, or the banking fees are high or take too much, some traders, import-exporters, have been using US dollar stable coins to settle their trade, because, “Hey, I can just get this cryptocurrency. It’s based on the dollar, and I’ll purchase my supplies from this country and I’ll just pay them that. It stays a dollar, so the value’s the same. Why should I go through the bank and do a bank wire when I can just do this crypto asset transaction?” So that’s why stable coins have become very popular around the world as a new phenomenon.

Chris (37:28):
How does the rise of cryptocurrencies then challenge governments’ traditional control over money? And what does that mean for national security and democracies?

Yaya (37:38):
It’s multifaceted, like most things, because Bitcoin and cryptocurrencies have been around for a while, and I think governments are going through not only a learning curve, but there’s this sort of arc — like a character in a movie. It’s like this is the beginning, and then you figure out what the problem is, but then there’s some sort of maybe resolution. And I think that’s what’s happened with cryptocurrency. When Bitcoin first came, it was, “Wait a second, we didn’t develop this as a government. All these illicit actors are going to use it.” And that’s what we did see. I mean, I first started getting into this because I saw a terrorist funding campaign that was using Bitcoin back in the day. We might’ve even talked — we probably talked about it years ago. And so that was how governments were responding, and they were concerned that, okay, this is taking away from the money supply — from our dollar, depending on the country. Because in Nigeria, this became a huge issue because the naira and the Nigerian currency started really going down — huge inflation — and people were using cryptocurrency to try to maintain the value. And so they really cracked down on the crypto sector. So the early stage of government response in many countries has been fear and doubt.

Chris (38:57):
Well, yeah, there is a lot of fear about it, isn’t there?

Yaya (39:00):
Yeah, there is. But that has changed. And the US is really a good example because the US did establish some regulations for illicit finance — anti-money laundering for crypto exchanges — way back in 2013. I actually give the US kudos for doing a good job there. But generally you saw here in the US especially, it sort of came to its height in the previous administration; in the Biden administration there was so much aversion to this cryptocurrency stuff, especially after the FTX fraud debacle. Most people, many policymakers, didn’t want to hear anything about crypto. “What is this crypto stuff?” But at the same time — and also there’s the casino nature of so much of the crypto, because of the price. I mean, a lot of it’s basically glorified gambling, which is what so much of the crypto phenomenon has been. And so, a lot of distasteful stuff, if I’m honest.

(39:57):
But at the same time, you always had people, developers, projects that were saying, “Okay, yeah, that casino culture stuff, I guess it’s part of it, we have to deal with it. But really what’s interesting here is that we can make payments better. We can make digital finance better, and we can even make our economy better, because now we can start doing interesting things. We can start programming money. We can have micropayments — you can’t do a 0-cent payment in our traditional funding — but with cryptocurrencies, it’s just software. You can program it and do tiny, tiny micropayments. Maybe we could do that for renewable energy systems, where you share energy and then you get paid even point-minute amounts of funding. That’s possible with blockchain-based cryptocurrencies. So now where we are is that I think regulators — I deal a lot with regulators in my work — have gone past the knee-jerk reaction of, “Okay, this stuff doesn’t make sense.” And they’re now realizing cryptocurrencies are here to stay, so we have to regulate them, because if you don’t regulate this environment, it’s going to be all these fraudsters and hacks and all this stuff. And so that’s where we’re getting. I would actually say crypto is entering its adult phase right now with regulation.

Chris (41:12):
Cryptocurrencies and blockchain technology more broadly give authoritarian states like Russia and Iran ways to bypass Western sanctions. And what you described earlier with China’s system, again, is that going to be a way around sanctions, which makes sanctions almost null and void?

Yaya (41:33):
So what I would say is, with all of this stuff, it’s not that these efforts like the e-CNY or mBridge, or even Russia experimenting with its own digital currency, or Iran, as you mentioned — these countries have been trying — but I don’t think that all of these efforts themselves are going to be very successful. There are a lot of limitations and a lot of challenges. The financial system is so complicated. It takes a lot, and you have to be able to create a system that many countries want to use. It can’t just be the rogue nations. If it’s just the rogue nations, then what can you do? It’s just a bunch of rogues. You have to have a system that is an alternative that many countries will start to use or want to use. The way I describe it is that it doesn’t have to be a replacement for the regular banking system or the SWIFT system, which is where you have international wire transfers.

(42:29):
It just has to be what I call a viable alternative — something that is viable. It works; you know that you can use it, and it’s an alternative for enough countries. Maybe a lot of the rich countries don’t use this new system that gets developed. But if enough middle-income countries and low-income countries that have a lot of resources and a desire to trade support a new system — if China has its own payment system that’s separate, and it gets more attractive — then this is, I think, a real threat. It’s a real risk that other countries, and the US in particular, have to address, but it’s not going to happen overnight. My sense is that right now, where we are in the US, the US has finally started to see this issue and is being more proactive. I mean, the Trump administration has a very different focus when it comes to digital assets and cryptocurrencies — very pro — and is seeing this technology as a way to compete or to bring something of value, as opposed to just something to fear.

Chris (43:42):
Do you feel, broadly, policymakers are on top of this? I find across the spectrum, both Conservative, Labour, Democrat, and Republican in the States, that a lot of politicians tend to be a bit behind the curve on these things. So do you feel that the right people are really on it, as they should be?

Yaya (44:02):
I know in the US, but generally speaking, regulators, government officials, even the financial regulators, tend to be way behind, because most of these developments are software developments, and the software world is always moving much faster than even regular policymaking and financial policymaking. Banking and software are two different worlds. In software and tech, they iterate quickly, they do different things, they program, they are creating all these new tools. Banking, because it’s so regulated, moves slowly and doesn’t adapt to change. So the policymakers are usually more in line with the banking side. For several years, it’s always been the case that regulators have been behind.

That’s not to say — because again, I know many of these regulators and talk to them — that there aren’t people who understand this. There is always, I would say, a minority of people who are very much into it. Because the thing about this stuff is you can go down the rabbit hole so quickly. I think it’s fascinating. Once you get into it — even if you’re not a developer; I’m not a programmer, I’m not a tech guy per se — but once you start, you get the main concepts and you see what’s possible. It’s really interesting. So if you’re a curious person, you learn a lot about it. And I think in most governments, in each department there are one or two people who are into the digital asset space, and everyone else doesn’t know what they’re talking about. That’s kind of the case right now.

Chris (45:25):
Let’s take a break and be right back with more.

(45:42):
Looking ahead then, looking maybe 10 years ahead, where do you think the global financial system is going with all of this?

Yaya (45:53):
I don’t know the end state — obviously, right? I’m not going to be so brash as to say I know exactly — but I would say that we’re in a transition period right now, and we’re in this period of competing formats for money, competing digital formats. There is the regular banking that people have always done. There’s mobile money, which is the mobile money applications that people are using, which people are already very used to, and they use them a lot — the fintechs, as we call them. There are cryptocurrencies, which don’t have as much uptake in terms of daily use, but they’re out there. But stablecoins — stablecoins are actually what I would say to watch out for, because everyone’s familiar with cryptocurrencies, but most people don’t use cryptocurrencies; they trade them.

(46:46):
Stablecoins are going to be different because they’ve already been used overseas a lot where people have found value. But what’s happening now in the United States is that the US Congress passed a bill called the GENIUS Act, and the president signed it into law. So it is now law that stablecoins in the US are regulated, and banks are going to be allowed and approved to use and issue stablecoins. What that means, looking two years ahead, a year and a half ahead, is that banks are going to be figuring out if a stablecoin can make their lives easier and can be better for conducting transactions than the infrastructure they currently use. And it’s not just for the consumer. The law actually states that banks can use stablecoins between themselves, because banks have interbank transactions between each other where it’s a really clunky process and there are fees associated with how they exchange money between banks. Stablecoins may make those transactions easier, especially overseas.

So a lot is going to change. Our banking system is going to change, and there may be new formats for us to use. On the international side, these efforts to create an alternative trading platform that the US is not involved in are going to continue. They may or may not be successful, but things are up in the air now, and we need to pay attention to them.

Chris (48:17):
Yeah, definitely. Where should listeners and policymakers be looking or reading to get a better understanding of all of this? It is quite an intimidating subject. And as you’re saying, you can go down a rabbit hole, and I probably wouldn’t recommend just going on YouTube and randomly watching stuff about Bitcoin because that could take you to all sorts of places. So where should people be going to get decent information on this?

Yaya (48:41):
I’ll name-drop one. There’s one Substack that I subscribe to called Crypto Is Macro. Now, it may be a little bit advanced because it’s written by Noelle Acheson. She’s a really good observer. She’s an economist, but she’s really into crypto and is looking at all of these developments that are happening. She’s based in Europe, and I think people might like her work — Crypto Is Macro on Substack — so I would recommend that.

And there are lots of other crypto publications, news publications. There’s CoinDesk and Blockworks. There are a few other crypto publications where you can go to find out what’s going on.

Books: I will recommend a book that I just read recently. I’ll recommend this book called Read Write Own, and it’s by Chris Dixon. Chris Dixon is at Andreessen Horowitz; I believe he’s the head of Andreessen Horowitz, the big VC firm in Silicon Valley.

(49:45):
They have a crypto investment arm. They invest in a whole bunch of crypto projects in particular. That book is good. It does get a little technical, but I think it’s written for people who aren’t technical. It explains how all this blockchain technology fits into the development of the internet overall. His thesis — without spoiling it, but his main thesis — is that the blockchain technology we’re seeing is not just for the financial aspect; it’s a new way of managing data on the internet. And his thesis is that potentially it offers a way for users to have more control, where you don’t have to be beholden to big corporations and the attention economy. I think some people would be fascinated by that because it provides a way of looking at this space, and obviously there are critics out there. But I would start with some resources like that.

Chris (50:44):
Brilliant, brilliant. And is there anything else important to you about anything that we’ve discussed today that we haven’t touched upon?

Yaya (50:51):
We kind of touched on it, but I would say the issue of US economic sanctions is the big one. I want to put a finer point on it, which is that the power of US sanctions right now is based on the importance of the dollar and the importance of the US banking system. If you get sanctioned, you’re out of luck. If you can’t transact digitally, you can’t transact with banks. So these developments are important because, as that shifts — if there are shifts in this financial system toward some alternative — the way we’ve had it since World War II, since the end of World War II, has been dominated by the US. I mean, it was the US and the UK. Hey, it was you and me, Chris. Our nations crafted this world order, this Bretton Woods world order.

Chris (51:45):
That special relationship.

Yaya (51:45):
Yeah, that special relationship. It was all the institutions — the IMF, all of this — with US power and that financial, economic statecraft that the US has been able to do. Now it is up for grabs. We’re no longer in the Cold War, and everything is shifting. So this type of stuff, even though some people may hype one particular change — I’m not saying the e-CNY is going to be the death of US sanctions or anything like that — I’m just saying we’re in a moment where there are so many shifts to watch. It’s going to be interesting. There is going to be competition over what the future digital economy looks like and who has control of it.

I’ll end with one thought. Sometimes when I do presentations, I’ll end with this, and I have a slide, but I can’t show the slide here.

(52:28):
So hopefully listeners will see this in their mind. There was a time when world geopolitical power was based on how much gold you had. For centuries, that was what was most important to countries and to your geopolitical power. Post–World War II, especially after we left the gold standard, it became about how much access to the dollar you had. Having the dollar was very important for your geopolitical standing and power, and so on. So that’s what people are thinking now. They’re thinking, “Okay, is another currency going to eclipse the dollar?”

My assessment of the environment is different. It’s not that there’s going to be another currency. What I would say is that the next sort of reserve asset that is important is data. It’s about data, and it’s not just how much data you have, but how you use data. That’s why these conversations about AI are so important, because what you’re seeing is that the nation that has the best data, and is able to do the most with its data, gains economic and military benefits and administrative benefits.

(53:38):
Data, I think, is becoming the next resource. And again, it’s not just how much data you have, but what you do with the data. That’s what all this digital stuff is. Everything is now based on data. So I would end by saying: don’t worry so much about whether the yuan is going to be more valuable than the dollar or the euro. That stuff is important for the economists out there, but I really think that, geopolitically, what’s happening is that the state’s and your business’s relationship with, and use of, data is going to be the important asset that will dictate who has leverage in the global order.

Chris (54:11):
Cool. Thank you very much for that. So Yaya, where can listeners find out more about you and your work?

Yaya (54:17):
Yeah, I am notoriously bad with social media. I do not —

Chris (54:21):
In some ways, that’s not a bad thing.

Yaya (54:24):
Oh, man. Yes.

Chris (54:25):
It’ll give you a lot of peace.

Yaya (54:26):
Oh yes, much more peace. I’m much happier now. I mean, if people find me — yeah, I am on X at SignCurve. I spell it differently, SIGNCurve, but I don’t really post there. LinkedIn is where I am more active because I deal a lot with anti–money laundering regulations. So LinkedIn — if you just look for Yaya Jata Fanusie, I’m there.

And just look for me in podcasting; I should mention — I’ll put in a plug. I’m involved in two podcast projects: The Jabari Lincoln Files, which we talked about on your show a few years ago. Thanks so much. I know some listeners came to the podcast — that’s my spy-thriller podcast. And I’m also working with Illicit Edge. I have a podcast, which will be having new episodes soon, called Designated, which deals with financial crime and illicit finance issues. That’s more of a show like this, an interview show, so you can find me in the podcasting world.

Chris (55:22):
Well, Yaya, thank you so much for your time today. Thank you for joining me on the show. It’s great to have you back on, and I hope to have you again in the future.

Yaya (55:28):
Wonderful. Thanks, Chris. Always great to talk to you.

Chris (55:30):
Thank you.

Announcer (56:02):
Thanks for listening. This is Secrets and Spies.