“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” – Lord John Maynard Keynes.
China’s central bank is developing what has the potential to be the most potent economic weapon in the world. That weapon will make Keynes’ statement a frightening prediction rather than a truism.
Governors at the People’s Bank of China (PBOC) recently revealed that their institution is trying to develop a central-bank issued cryptocurrency similar to bitcoin or Etherum. One of them, Vice Governor Fan Yifei even went so far as to write a Bloomberg Voices’ op-ed urging all Central Banks to follow suit.
The main use of such a currency would be to give central bankers’ some control over the Wild-West environment that is cryptocurrencies. Other utilizations would be to give central banks new tools to stimulate economic growth and control inflation. Yet there is one possible disturbing use for a central-bank or government-issued cryptocurrency that should concern us all: as a weapon of economic warfare.
Some Cryptocurrency Warfare Scenarios
Once cryptocurrency comes into widespread use; a development I expect to occur around the year 2030, the potential for a number of cryptocurrency warfare scenarios becomes obvious. A few of the potential scenarios include:
- Cryptocurrency Warfare Scenario #1 – China goes to war with the Republic of Drekistan. Sometime on the first day of the war every soldier and officer in the Drekistan Army receives a text stating that 500 cryptocoins; equivalent to one million Drekistan dollars, will be sent to him if the army stands down. Derikstan’s ruler General Windbag responds to this by exhorting the troops to fight. Private Gomer Pyle; who is more interested in 500 cryptocoins than the glory of General Windberg, simply shoots the dictator. General Windbag’s second in command, Colonel Crud gets the message and surrenders his forces.
- Cryptocurrency Warfare Scenario #2 – Russia’s cyber-intelligence service wants to undermine the economy of the Ukraine. To achieve that goal, its’ agents hack into the network at the Ukraine’s central bank and order its computer to send unlimited amounts of cryptocurrency to every citizen of that nation. The idea being to induce hyperinflation and totally undermine Ukraine’s economy.
- Cryptocurrency Warfare Scenario #3 – The CIA wants to undermine the government of Iran for some reason. To achieve this goal it starts sending large amounts of cryptocurrency to every anti-government group in that nation. To create rioting and sow instability the agency sends texts to citizens promising large cryptocurrency payments if they turn out for protests. Or to workers in key industries stating large payments will come if they go on strike.
- Cryptocurrency Warfare Scenario #4 – A terrorist group wants to create instability in a particular country. The group hacks into the country’s central bank, and sends out a fake tweet claiming that every citizen will receive a large cryptocurrency payment on a specific day. The hope is that the failure of the payment to appear will trigger rioting or unrest.
- Cryptocurrency Warfare Scenario #5 – The government of Cuba wants to influence the outcome of the next Venezuelan election. In the days leading up to the Venezuelan election it sends instant messages to every citizen of that nation stating that they will receive large cryptocurrency payments if a specific candidate or party wins.
- Cryptocurrency Warfare Scenario #6 – Russia’s GRU (military intelligence) wants to undermine the government of Finland. Finland distributes salaries to government workers and soldiers and benefits; including pensions and basic income, to its citizens via cryptocurrency. The GRU has its agents’ hack Finland’s central bank and block or cut the payments. A citizen might walk into the supermarket expecting to be able use his cryptocurrency app to buy food and find he has no purchasing power. That leads to civil unrest and brings down the government.
Such scenarios should concern us because anybody with access to a large amount of computer power including governments, corporations, organized crime terrorists and wealthy individuals would be able to engage in cryptocurrency warfare. A large corporation with significant holdings in a particular country; such as Exxon-Mobil (NYSE: XOM), might deploy Scenario #5 to keep a candidate dedicated to nationalizing oilfields out of office for example.
This kind of economic warfare would be cheaper, easier and less destructive than traditional military attacks. There might also be fewer political consequences to it.
What does History teach us About Currency Warfare?
Whether governments would engage in cryptocurrency warfare is unclear. Historically most regimes have refused to attack the enemy’s currency.
During World War II, both the Allies and Axis refrained from dropping large amounts of counterfeit money on enemy cities, even though they certainly had the means to do so. The Nazis even managed to counterfeit large numbers of British five-pound notes and US dollars – but failed to deploy them as weapons.
The best example of such economic warfare I can think of is an indirect one. During the American Civil War; private printers in the North counterfeited large amounts of Confederate money, which was sold directly to Union soldiers. The Union soldiers used the funny money to make purchases from Southern civilians – often at bayonet point.
The Lincoln Administration was aware of the practice but failed to condemn or stop it. One result of this counterfeiting was hyperinflation in the South, which made Confederate banknotes worthless. That undermined the morale of Confederate soldiers and led to widespread desertion, which hastened Union victory.
The Union was able to engage in counterfeiting in the Civil War because Lincoln had “plausible deniability;” the fake money was the work of private entrepreneurs, not the US Treasury or the Union Army. The danger of cryptocurrency warfare is that it would provide plausible deniability. There would be no paper trail for investigators to follow, and no way to tell where the cryptocurrency attack came from.
Given the problems created by cyberwarfare we need to think carefully about cryptocurrency warfare. Its advent might give outsiders or foreign governments the ability to totally disrupt an economy or a nation at the touch of a button
 For a good account of Civil War era counterfeiting see a Nation of Counterfeiters by Stephen Mihm.