Geofinance and Fragmentation: Wholesale Central Bank Digital Currencies

ABSTRACT Central bank digital currencies (CBDCs), especially wholesale ones, were initially hailed as tools for frictionless global financial flows. Paradoxically, however, they are contributing to the fragmentation of the international financial system through the emergence of minilateral blocs of ‘friendly’ jurisdictions that have established, or sought to establish, interoperability among their wholesale CBDCs, while remaining disconnected from rival arrangements. This outcome is difficult to reconcile with existing explanations. Indeed, international financial institutions mobilised early to promote interoperability, and much of the financial industry has favoured more integrated cross‐border payment infrastructures. This paper argues that geofinance, and specifically efforts by major jurisdictions to preserve sovereignty over critical financial infrastructures and promote their currencies internationally, provides a more convincing explanation. Through an analysis of initiatives led by China (mBridge and Ensemble), Russia (BRICS Bridge), the European Union (Pontes and Appia) and the Bank for International Settlements (Agorá, in which the United States also participates), the paper shows how geopolitical and monetary rivalries are reshaping the architecture of global finance. Empirical evidence is drawn from public documents, media coverage and 28 elite interviews.