Why China’s e-yuan is a shield against Western sanctions

Oliver Bullough



People keep asking me what I think about Yevgeny Prigozhin’s death, but I don’t really feel like I have anything to say except that it heralds nothing good. An autocracy where leading insiders are killed in horrible ways is neither stable nor predictable, and that is the worst kind of autocracy. That Vladimir Putin felt the need to kill Prigozhin so grotesquely suggests that Putin is increasingly nervous and twitchy.

It feels like a long time ago, but the Russian president used to have a reputation among Westerners as a preternaturally gifted three-dimensional chess player; a master strategist who saw around corners. It was an impression that I never held, having seen Putin being unimpressive in person too many times. But now to everyone he must seem like a toddler hitting the chessboard with a mallet.

Many oligarchs will currently be feeling the kind of nerves that Roman patricians will have felt during the reigns of the more depraved emperors. Putin will be hoping that the assassination of Prigozhin will keep them all in line. There is, though, perhaps a small silver lining hidden within that comparison. Unlike first-century Rome, 21st-century Moscow is not a global center of civilization, wealth or culture. Several other places could provide just as attractive a home to those oligarchs should they decide to leave.

Western governments should be reaching out to those Russian insiders who are not war criminals and offering them a way out if they break with Putin, condemn the war, assist Ukraine and help Western law enforcement agencies to track down the Kremlin’s assets. Sanctions were always supposed to split the Russian elite, which is something that would help undermine the Kremlin’s ability to wage war. And something we should always bear in mind.


Along with cryptocurrencies, central bank digital currencies (CBDCs) have always seemed to me like a solution in search of a problem. We already have digital payment systems that work perfectly well, so what exactly is the point of the Federal Reserve, the Bank of England or the European Central Bank recreating them with software systems of their own? Central banks have said that they’re keen on maintaining the security of the financial system, as well as ensuring that everyone has access to a payment mechanism, but it does all seem a little vague (judge for yourself here, or here, or here).

So, thanks to the Financial Times for this fascinating piece looking at the issue from the perspective of Beijing, which is well advanced in its quest to create a fully digital yuan.

  • “The aim is not to depose the dollar but to chip away at its dominance — and, crucially, to create enough space for China’s economic survival if the U.S. one day targets it with the type of sanctions it has imposed on Russia.”

Finally, CBDCs make sense to me. Duh.

Before February 2022, the Kremlin thought that the Russian Central Bank’s giant war chest of foreign exchange reserves would insulate its economy from any Western sanctions if it launched a full-scale invasion of Ukraine. Western countries’ decision to freeze those reserves came as a nasty surprise, which has only been made nastier by suggestions that Russian reserves be invested and that the income generated be used to support Ukraine. (Question to knowledgeable readers: Why was more than half of the frozen 300 billion euros in Belgium of all places?)

China’s foreign reserves dwarf those owned by Russia — they were worth $3.2 trillion in July, according to official statistics; $4 trillion if you include Hong Kong; and $6 trillion if you include “hidden money”. So the prospect of them being frozen by Western sanctions is an alarming one for Chinese policymakers. And that’s why the “e-yuan” is so potentially powerful, since it would form the backbone of an independent payment system entirely outside the control of Western governments, and thus immune to sanctions.

Aha, sanctions again.

A fanatic is someone who can’t change his mind and won’t change the subject. (It’s a line attributed to Winston Churchill, but then so many are that it’s anyone’s guess who first said it.) I fear that my opposition to the Western habit of using sanctions as the primary tool against kleptocracies is inching dangerously close to fanaticism. 

However, I do think that this is a perfect demonstration of the dangers inherent in relying on sanctions as much as we do. Controlling the global financial system is a priceless resource for Western countries (above all for the United States, thanks to the role of the dollar as the world’s reserve currency), and it is a power that should be protected and used only in extreme circumstances. If Western governments use sanctions too much, that will just encourage non-Western countries to develop separate financial systems of their own. Relying on sanctions as the primary tool feels like overprescribing antibiotics to fatten up pigs. A time will come when we’ll really need them, and they won’t work anymore.

Among the many problems that an e-yuan would cause would be to defang U.S. law enforcement, which has in the past relied on the fact that corrupt transactions are often denominated in dollars to claim jurisdiction and thus prosecute cases that would otherwise have been ignored by everyone else.

Among such cases were the charges brought in 2014 by the FBI against the billionaire Ukrainian gas tycoon Dmytro Firtash. Although prosecution hasn’t yet gotten underway because he is still battling extradition from Austria, he has at least been removed from Ukrainian politics for most of the last decade. His focus has instead been largely on his own legal troubles. Earlier this year, he retained the Texas politician-turned-lobbyist Ben Barnes to try to negotiate a plea deal. Firtash denies any wrongdoing, but appears to be hedging his bets in many directions. According to Deutsche Welle, he also apparently sought to gain diplomatic immunity via an appointment to a Belarusian mission in Vienna, to prevent his extradition.

As I’ve said many times in this newsletter, the Ukraine crisis should provide Western countries with the impetus they need to properly invest in investigating and prosecuting financial crimes. The FBI’s investigation into Firtash lasted years and is an example of what a properly resourced agency can achieve. What does an insufficiently funded law enforcement system look like? It looks like one where a major agency is forced to drop an investigation after a decade of work because of “insufficient admissible evidence”.

Even as sanctions have become the primary tool used by Western governments to restrain kleptocratic networks like those run from the Kremlin, we should remember that they are a tool of foreign policy, not law enforcement. As such, it is completely fine for sanctions to be canceled, modified, expanded or removed if governments decide they should be. For instance, I think Arkady Volozh, the Israel-based founder of Russian search engine Yandex, should be rewarded for condemning the Russian aggression against Ukraine, because removing the sanctions against him would encourage other billionaires to switch sides – which is what we want to happen.

Yes, it might feel icky, and I’m sure there would be anger in Ukraine and elsewhere if anyone were removed from the sanctions list. But the aim has always been to change behavior, not to bring criminal prosecutions. If the behavior changes, then the sanctions should be scrapped (on the understanding that they can always be reimposed), in the interests of ending the war as quickly as possible.

On that note, this is a smart column from Josh Rudolph on how aid-giving Western governments should demand that Ukraine take stronger anti-corruption measures.

  • “Congress should ease the political pathway toward additional security assistance by imposing anti-corruption conditions that back Ukrainian investigators, prosecutors and judges in their battles against oligarchs and corrupt officials. Ukrainian civil society would be grateful and Putin would have a conniption.”


As I’ve mentioned before, I’m currently researching a book on money laundering. One topic that has gained very little attention from, well, anyone really, is trade-based money laundering (TBML), an unwieldy term for a slightly paradoxical phenomenon: the movement of value around the world through commodities, rather than through the financial system. Think of it as barter for cartels, but infinitely complex and absolutely vast.

  • “TBML is likely one of the largest forms of money laundering. In addition, as countries have strengthened their controls to combat other forms of money laundering, various U.S. government reports and officials, as well as knowledgeable sources have stated that there are indications that criminal organizations and terrorist organizations have increased their use of TBML to launder their funds,” a Government Accountability Office report states.

The reason I mention it is because  respected British think tank RUSI has published a report summarizing a discussion it hosted with industry and law enforcement professionals over how to address the problem, which is handy as the U.K. is due to host a global TBML summit later this year.

Part of the problem with TBML is that, unlike money laundering via the financial system, it is hard to analyze since the trade system is fragmented, non-standardized and opaque. The data is therefore of poor quality and participants are not particularly interested in cooperating with the authorities. You could sum up the report by saying that no one knows what’s going on, how to find out what’s going on, or sufficient money to invest in building structures that could try to find out what’s going on.

This is unfortunate since TBML is increasingly how representatives of regimes shut out of the formal financial system move their wealth around the world, whether that’s Iran or North Korea or Chinese oligarchs trying to evade Beijing’s capital controls. And, to make this even more complex, TBML is not just one thing, as the RUSI report lists four separate manifestations of the phenomenon that are so different that they almost deserve their own names.

  • “The physical movement of goods with over- and under-invoicing to move the value across borders.”
  • “Entirely fictitious shipments, with no goods moving across borders, simply a ‘trade’ transaction used to obfuscate the movement of funds (‘ghost shipments’).”
  • “Black Market Peso Exchange (BMPE) and analogous systems, which involve no cross-border transactions or movements of cash, but the integration of cash into high-value goods markets and the shipment of goods across borders as a representation of value.”
  • “Service-based money laundering: cross-border payments for fictitious services, with no movement of goods.”

This is important. There is no doubt that Russian money launderers will be shifting value around the world via deliberate over and underpricing of commodity exports, in order to buy the weapons and high-tech components they need to kill Ukrainians. Targeting TBML is central to targeting the Kremlin war machine. In short, if we want to understand kleptocracy, we simply have to understand how oligarchs move their wealth. So if you happen to control access to research grants, please divert some towards academics who are attempting to understand what’s going on in the trade system.


This section is normally about what I’ve been reading but, full disclosure, what with the kids at home for the holidays, a whole lot of work to catch up on, endless interviews to transcribe, and friends staying for the long weekend here in the U.K., I’ve read almost nothing in the last week. I did, however, cook a really good chana masala on Saturday night, which involved reading the recipe in Grace Regan’s “Spicebox” cookery book. I highly recommend it, particularly if you serve it with onion bhajis.

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