The Dream and Dilemma of Multi-National Digital Currencies: Promise or Pipe Dream?

What Is an MNDC?

A multi-national digital currency (MNDC)—a shared digital medium of exchange issued and accepted by multiple countries—carries both significant potential and complex challenges. 

The Case For MNDCs: Efficiency, Inclusion, and De-Dollarization

The main benefit of an MNDC is reduced transaction costs and frictions. Remittance costs fall, and cross-border payments become more efficient and cheaper by bypassing intermediaries and multiple currency exchanges. Also, real-time settlements are a huge benefit. Instant or near-instant clearing and settlement of payments improves cash flow and reduces counterparty risk.

It's perhaps a dream that will never materialize, but a shared digital currency could promote economic cooperation and integration within regions (e.g., LATAM/MERCOSUR, ASEAN).  It would definitely boost trade by reducing the uncertainty of currency fluctuations.

Hidden Gains: Real-Time Settlement and Monetary Credibility

A less obvious but similarly important advantage is that smaller or less stable economies can benefit from anchoring their monetary system to a larger, stable multi-national framework. It can also enhance credibility and reduce inflation in jurisdictions with weak monetary institutions. For the smallest or poorest jurisdictions, MNDCs can help integrate unbanked populations into the financial system through digital wallets.

Perhaps the most discussed advantage recently is the desirability of de-dollarization -an MNDC would reduce dependence on the USD and its clearing mechanisms, redistributing global monetary power and reducing dollar dominance. 

Economic Sovereignty at Stake: The Major MNDC Tradeoff

The biggest downside of an MNDC is the loss of national monetary policy autonomy. Member countries would lose control over interest rates, inflation management, and currency adjustments—especially problematic during economic shocks or asymmetric crises. Central banks may not be able to respond effectively to domestic conditions without being able to control interest rates or issuance volume. Central banks would be relegated to operating under a regional monetary council or policy board, similar to the ECB. 

Central banks would still likely manage liquidity provisioning to and regulation of domestic financial institutions. Balancing privacy rights with AML/KYC obligations would still be left with central banks working with regulators. 

Policy Gridlock and Regulatory Discord

Differing regulatory regimes, privacy standards, AML/KYC requirements, and tax rules could hinder implementation. Looking at how long it took the ECB to become a functioning unit, and how fractious the EU/ECB is today, reaching consensus on governance, issuance rights, and monetary rules among sovereign states is nigh on impossible. Disagreements could even lead to political instability.

Digital Risks and Systemic Threats

Lastly, there are significant cybersecurity and operational risks. A digital currency introduces new risks of hacking, fraud, or technical failure, with large-scale economic consequences. The infrastructure must be secure, resilient, and interoperable across borders.

A Realistic Alternative: The Rise of CBDCs

Currently, there are timid forays into national digital currencies. These are so-called stable coins, backed by fiat currency. You could call these National CBDCs (Central Bank Digital Currency). Issuance and management would be by individual central banks. This would give them full autonomy over monetary supply, interest rate setting, and currency circulation. This control would allow tailoring to local economic goals and policy tools. Citizens already familiar with their own central bank are more likely to trust and adopt a national digital currency.

Cross-Border Problem Still Unsolved

However, they still don’t solve the cross-border problem. MNDCs provide seamless cross-border transactions within member countries. There is no FX risk or cost, which is a huge effect (and would eliminate a great deal of banks’ profits with the disappearance of derivatives!). With a CBDC, cross-border ecosystems are fractured; each CBDC must interoperate via bridges or hubs of some sort (TBD). To many countries’ delights, MNDCs reduce reliance on external currencies like USD or EUR. They could empower regional blocs (e.g., Mercosur, CELAC) to assert economic sovereignty.

The BRICs Digital Currency Fantasy: Political Fractures and Monetary Chaos

There has been a lot of talk (but no substantial action other than some fraudulent videos released by Russia) about a BRICs currency. This is pure fantasy. BRICs are not a politically homogeneous bloc. They span democratic and authoritarian regimes, with varying levels of openness, transparency, and geopolitical alignment. More importantly, these economies maintain radically different currency regimes that would be impossible to reconcile:

• China: Managed peg (RMB)

• Russia: Free-floating but tightly managed. 

• India: Market-determined with RBI intervention

• Brazil & South Africa: Fully floating

There’s already competition among them for control- China, India, and Russia may each want to lead or host the MNDC infrastructure or reserve system. Also, each country has its own national digital currency ambitions (e.g., e-CNY, Digital Rupee, Digital Ruble), which is counter to an MNDC.

Establishing a common policy rate or jointly managing digital monetary supply is nearly impossible without deep monetary convergence and political alignment. Additionally, volatile inflation and interest rates in countries like Brazil and South Africa make it doubly hard. The group would need to create a new supranational monetary governance framework. This would face strong resistance, especially from China, Russia and India, who may not want to dilute sovereignty or accept external control.

Conclusion: MNDCs Are a Vision of the Future—Just Not the Near One

MNDCs of any sort are going to be difficult to implement, solving some problems but causing new ones. An MNDC across the BRICs (or even MERCOSUR) is complete fantasy, given the vast disparities of ambitions, control and other factors. Not to mention, one of the BRICs – Russia – is under heavy sanctions. It’s doubtful that India or China would commit to a currency association under these conditions when they wish to remain integrated into the worlds main financial systems. 

CBDCs solve some of the problems, and within each country would vastly ease transactions, clearing, and avoid the pitfalls of MNDCs lack of autonomy and control. But they do not solve the problems associated with trans-border transactions.

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