Publication Type

Journal Article

Version

submittedVersion

Publication Date

10-2025

Abstract

Digitalization is transforming the architecture of the international monetary system, reshaping how currencies function and financial infrastructures evolve. Among the significant developments are central bank digital currencies (CBDCs) — new digital forms of national currencies. While CBDCs promise benefits such as efficiency, they also generate relational, technological, legal and governance complexities that would profoundly affect the global financial landscape. Against this backdrop, a compelling question arises: will CBDCs, particularly cross-border CBDCs, challenge U.S. dollar dominance?

To address this, this article adopts a forward-looking approach to examine three interrelated crucial questions: what makes CBDCs complex? What governance complexity is likely to arise? Will CBDCs challenge dollar dominance?

It first explores a triple helix of relational, technological, and legal complexities, setting the stage for examining the governance challenges they generate. Relational complexity stems from intricate webs of contractual and regulatory relationships among diverse actors, generating overlapping rights and obligations across multiple jurisdictions. Technological complexity involves, inter alia, interoperability challenges, distributed ledger technology (DLT) implementation, cybersecurity vulnerabilities, and operational risks that complicate liability attribution. Legal complexity largely results from rule compatibility challenges, a mismatch between novel digital realities and existing legal frameworks, and the structural characteristics of CBDC projects.

Building on these dimensions, the article analyzes governance complexity across three primary governance models — private contracting, interstate agreements, and multilateral arrangements — showing how each is shaped by the interplay between infrastructure, state authority, and stakeholder autonomy. The fusion of currency and its underlying digital infrastructure creates a multi-layered governance challenge: the constrained flexibility of private contracting, the infrastructure-centric nature of interstate agreements, and the heightened uncertainties surrounding multilateral arrangements. This leads to a governance paradox: while CBDCs promise benefits like reduced transaction costs, their governance structures tend to fragmentation, which constrains interoperability and limits their potential gains.

Taken together, these complexities suggest that CBDCs — despite their promise — are unlikely to fundamentally alter dollar dominance in the short term. Such complexities will likely drive fragmentation in the financial system and disincentivize standardization and rapid expansion. This makes it difficult to achieve the network effects needed for widespread adoption. Moreover, these complexities create uncertainties, prompting many actors to continue path dependence on existing monetary arrangements.

By analyzing monetary hegemony through the underexplored lens of complexities, this article offers an analytical framework to anticipate the complexities of digitalization and assess strategic choices. In doing so, the article sheds light on the potential and limits of CBDCs and clarifies their implications for the future of monetary hegemony.

Keywords

technology, law, monetary hegemony, dollar dominance, digital currencies, digitalization, complexity, CBDC, digital disputes, international law

Discipline

Banking and Finance Law | Comparative and Foreign Law

Research Areas

Corporate, Finance and Securities Law

Areas of Excellence

Digital transformation

Publication

Virginia Journal of International Law

Volume

66

Issue

3

First Page

1

Last Page

41

ISSN

0042-6571

Identifier

10.2139/ssrn.5686303

Publisher

Virginia Journal of International Law Association

Embargo Period

11-3-2025

Additional URL

https://doi.org/10.2139/ssrn.5686303

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