US cyberspies fly to the UK to try to stop Britain signing a new deal with Huawei. The US threatens to cut off Iraq from the global financial infrastructure. A cryptocurrency user falls foul of new regulations on money movements.
The three events are plot turns in a single story—an unfolding conflict over control of the world’s information and financial systems.
“The US and China are weaponising global trade networks,” two US professors, Abraham Newman and Henry Farrell, warned in a September article in the Financial Times (subscription required).
“The US began converting networks into tools of domination after the September 11 terror attacks. The internet became a distributed system of surveillance, while the US press-ganged global finance into service,” Farrell and Newman said.
The fact that US dollar payments have to pass through US-based banks gives the American government de facto power to cut off states it doesn’t like from the global financial system.
In a new article for ‘Foreign Affairs’, Farrell and Newman describe how the US can assert pressure on what it sees as non-compliant actors.
“Washington has tied down massive firms and entire national economies by targeting vulnerable points in global supply chains”
“The US Department of the Treasury uses the international financial system to punish rogue states and errant financial institutions,” they say.
“In service of its trade war with China, Washington has tied down massive firms and entire national economies by targeting vulnerable points in global supply chains.”
In anticipation of the fallout from the conflict, some countries—especially those on or near the frontline—have been testing whether they can go it alone.
On Christmas Eve, Russia announced it had successfully tested what it calls the ‘sovereign internet’, a version of the internet subject to domestic controls on the free flow of information.
Russia’s sovereign internet relies on government access to the choke points of the domestic internet infrastructure, the local internet service providers (ISPs).
“The sovereign internet initiative would effectively get ISPs and telcos to configure the internet within their borders as a gigantic intranet, just like a large corporation does,” Alan Woodward, a professor in computer science at the University of Surrey, told the BBC.
In November, Iran went further during a period of domestic protests, attempting to block all internet connections rather than just those with entities outside the country.
However, the internet blackout was only partially successful.
Cited in Wired magazine, Alp Toker, director of connectivity tracking group NetBlocks, said it took Iranian authorities about 24 hours to completely block the nation’s inbound and outbound internet communications.
But there was still some residual information leakage—traffic didn’t fall below 5 percent of normal connectivity levels. The Twitter account of Ali Khamenei, Iran’s supreme leader, continued to function.
Paul Bernal, a lecturer in information technology, law and cybercrime at the University of East Anglia (UEA), told New Money Review how difficult it is to shut down internet connectivity completely.
“The only people who have done this in the past are small Gulf states, who literally have a single cable running into their state,” said Bernal.
The only other way to ensure a truly domestic internet is to build it from scratch, added Bernal.
“For that you need a sufficiently authoritarian regime, like in China,” he said.
China and India have already set up nationwide digital identity systems, in each case with more than a billion participants. These digital ID schemes now underlie national payment systems and an increasingly large proportion of domestic economic activity.
“If you build systems to attack other countries, you leave yourself open to attack”
According to US professors Farrell and Newman, it’s already too late to decouple global information systems without incurring severe economic damage. But that doesn’t mean nations won’t start fights over access to the financial infrastructure, they warn.
“States will be bound together by interdependence that will tempt them to strangle their competitors through economic coercion and espionage, even as they try to fight off their rivals’ attempts to do the same,” Farrell and Newman wrote in Foreign Affairs.
Such conflicts could easily descend into a tit-for-tat battle, says the UEA’s Bernal.
“If you build systems to attack other countries, you leave yourself open to attack as well. You can either open up the internet or close it, you can’t make it open one-way only,” he told New Money Review.
There may already be a barometer of the global trend towards disintegration and cyberwar—bitcoin.
“Cryptocurrencies could find a use if we enter a period of political isolationism, where some countries decide not to cooperate with each other through the international banking system,” Bernal said.
“Perhaps it is the US government who will finally give cryptocurrencies an actual mass-market use case?” Dave Birch, a technologist and payments expert, said on Twitter this weekend, commenting on reported US threats to close down Iraq’s account at the Federal Reserve.
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