China is not retreating from digital money. It is drawing a harder boundary around who may issue it, who may supervise it and who may move it beyond the state’s view.

In February 2026, the People’s Bank of China and seven other authorities reinforced the country’s prohibition on virtual-currency business, classified related commercial activity as illegal financial activity and prohibited unauthorized offshore issuance of yuan-linked stablecoins. At the same time, the authorities distinguished prohibited private currencies from state-approved tokenization and continued expanding the digital yuan, or e-CNY.^[1]

China’s state-backed digital-currency infrastructure is no longer a minor experiment, although it has not displaced the country’s established retail-payment networks. By the end of September 2025, official figures placed cumulative e-CNY activity at 14.2 trillion yuan across 3.32 billion transactions and 225 million personal wallets. Reuters reported in May 2026 that the latest official data, measured as of November 2025, placed cumulative activity at approximately 16.7 trillion yuan. By comparison, China’s UnionPay network processed 279 trillion yuan in card transactions during 2025 alone.^[2]

China is simultaneously developing payment infrastructure intended to reduce exposure to dollar-based correspondent banking, foreign sanctions and political pressure from the United States. Yet its domestic monetary design is built around legal identity, regulatory access, transaction limits and the preservation of state control over capital movement.

Privacy coins offer a fundamentally different arrangement. They do not merely move visibility from one government to another. They attempt to remove the assumption that any government, corporation or privileged institutional observer should automatically receive the complete financial graph.

The conflict is therefore not simply between China and cryptocurrency.

It is a conflict between sovereignty over money and sovereignty within money.

This article develops that distinction into a broader framework: the sovereignty–neutrality frontier. A currency becomes more useful to its issuing state as identity, programmability, capital controls and supervisory access become stronger. The same features can make it less trustworthy to foreign states, companies and communities that do not want the issuer to retain a unilateral advantage.

The reverse is also true. Money becomes more neutral as no participant can freeze it, rewrite its issuance, inspect every payment or grant itself superior access. But a system that offers that neutrality necessarily limits the power of every state—including the state that hopes to use it against its rivals.

That is China’s dilemma. It is also the defining monetary problem of the emerging multipolar order.

I. The State Leviathan Perfected

China’s cryptocurrency restrictions are sometimes described as evidence that the country rejected blockchain technology. That interpretation is incorrect.

In October 2019, Xi Jinping told a study session of the Chinese Communist Party’s Politburo that blockchain should be treated as an important breakthrough in indigenous technological innovation. He identified applications spanning digital finance, supply chains, industrial systems and public services.^[3]

The state’s objection was never that distributed ledgers were technologically useless. The objection was that public cryptocurrency networks could create monetary issuance, asset markets, information channels and capital flows outside authorized institutions.

Chen Chun, a member of the Chinese Academy of Engineering and director of Zhejiang University’s Blockchain Research Center, articulated this distinction through his work on consortium blockchains and blockchain supervision. Chen argued that regulatory technology should develop alongside blockchain technology, including node tracking, visualization, penetrating supervision and active detection of activity on public chains.^[4]

Cai Weide, formerly a professor at Beihang University and a researcher on blockchain-based financial infrastructure, developed the principle further at the system-design level. Cai and his co-authors proposed dual-chain architectures separating account information from transaction activity. Related patents attributed to Cai describe automated regulatory systems that store financial transaction records on blockchains, apply configurable rules and generate supervisory reports by reading ledger data in real time. The regulatory engine can operate beside the blockchain or execute through on-chain smart contracts.^[5]

The significance is not that Cai designed a privacy coin with a concealed government master key. It is that supervision becomes a native function of the financial architecture rather than an investigation conducted only after suspicious activity has occurred.

Wang Yongli, a former vice-president of the Bank of China, has expressed the monetary principle beneath this design. Wang argues that modern money rests on sovereign law and national credit, and that decentralized digital assets cannot simply replace the state-issued unit around which taxation, accounting, debt and economic policy are organized.^[6]

This fits a conceptual lens developed in God, State, and Network. Money has historically been enforced by the dominant organizing power of its era:

• God and tradition: precious-metal money reinforced by moral belief, custom and inherited legitimacy.
• The State: fiat currency enforced through taxation, law, banking regulation and ultimately territorial power.
• The Network: digital scarcity and transaction rules enforced through distributed computation and cryptography.

The digital yuan is the State Leviathan perfected. It does not merely digitize fiat money. It allows code to reinforce the state’s control over identity, circulation, policy implementation and financial information.

Privacy coins represent the opposing direction of the Network Leviathan. Their purpose is not to make sovereign administration more precise. It is to make certain monetary guarantees independent of sovereign discretion.

II. Privacy With a Ceiling

This political architecture finds its technical expression in the concept of controllable anonymity, sometimes translated as managed anonymity.

Yao Qian, the former director of the People’s Bank of China’s Digital Currency Research Institute, was one of the principal architects of China’s early central-bank digital-currency research. His work described a system in which privacy could exist between ordinary participants while authorized state institutions retained the ability to identify parties and trace transactions under defined conditions.^[9]

The objective was to preserve selected cash-like properties without allowing digital currency to become an uncontrolled channel for corruption, money laundering, tax evasion, gambling or capital flight.

The People’s Bank of China later formalized the principle as anonymity for lower-value activity and legal traceability for higher-value transactions. Its model combines tiered wallets, varying identification requirements, transaction limits and risk-monitoring capabilities.^[10]

The e-CNY is not designed as a public ledger on which every citizen can examine every payment. China argues that it can reduce the personal information exposed to merchants, payment platforms and unrelated commercial intermediaries.

This can be a genuine privacy benefit. A merchant should not automatically receive a customer’s complete identity profile merely because it processes a small retail purchase.

But controllable anonymity separates privacy into different relationships:

In summary: controllable anonymity promises horizontal privacy—protection from peers and platforms—while preserving vertical visibility for the state. This is a coherent design for domestic monetary governance, but it is not neutral money. Neutrality requires that no participant, including the state, possess a unilateral advantage.

China does not demand that every participant see every transaction. It demands that the state preserve a lawful path to visibility.

Privacy is therefore not an unconditional property of the currency. It is a limited status that can end when transaction value, wallet tier, risk analysis or legal authority activates greater scrutiny.

A system in which privacy can be terminated by a sovereign authority is only as protective as that authority’s present rules, future intentions and institutional restraints. Those conditions can change while the accumulated financial record remains.

Controllable anonymity may protect users from merchants and private platforms without creating neutral money. Neutrality requires that no participant possess a unilateral technical privilege unavailable to every other participant.

III. The Reverse Sovereignty Stack

Balaji Srinivasan’s theory of the network state begins from the opposite political direction.

Balaji defines a network state as an aligned online community capable of collective action that eventually acquires territory and diplomatic recognition. His broader model includes an integrated cryptocurrency, a collectively governed treasury, an on-chain census and a social structure that begins online before acquiring a physical footprint.^[7]

Traditional states begin with territory and organize the people located within it. A network state begins with people and attempts to organize territory around them.

As developed in Imagined Communities 2.0, the network-state stack can be represented as:

A community first develops a shared narrative and membership. It then requires capital that cannot be casually frozen by an external institution. Capital enables coordination. Coordination creates durable institutions. Those institutions may eventually acquire territory and recognition.

China’s state network builds the stack in reverse.

The network state builds sovereignty upward from identity and capital. China projects sovereignty downward from territory and law into identity and capital.

That difference explains why privacy-preserving money occupies such an important position in the network-state model. A digital community cannot claim meaningful exit if its treasury can be frozen by the institutions it seeks to exit or if every internal relationship remains visible to political rivals.

In 1998, cryptographer Wei Dai proposed b-money, a system through which pseudonymous participants could exchange value and enforce contracts without relying on conventional government institutions.^[8]

What was once a thought experiment is now a functioning financial category. Open monetary networks settle value across borders, survive the prohibition of individual governments and provide the capital layer around which digital communities can organize.

This is the source of what ryo.news has called sovereign gravity:

A sovereign currency creates gravity inside the jurisdiction of its issuer. Neutral network money can create gravity across jurisdictions because participation does not require political trust in the issuer.

IV. Capital Controls as a Monetary Perimeter

China’s position on privacy coins cannot be understood without its capital controls.

China permits international payments connected to legitimate trade and other current-account activity, but controls continue to apply to much of the capital account. Residents’ overseas investments, foreign participation in domestic markets, currency conversion and cross-border transfers remain subject to regulated channels and administrative limits.^[11]

These restrictions serve several purposes:

• Limiting sudden and destabilizing capital flight.
• Protecting foreign-exchange reserves.
• Reducing pressure on the renminbi during periods of uncertainty.
• Preserving greater autonomy over domestic interest rates and liquidity.
• Preventing uncontrolled substitution into foreign currencies.
• Maintaining state knowledge of large cross-border financial movements.

Capital controls are part of China’s macroeconomic defence system. They can insulate domestic monetary policy from external shocks, but they also limit the international attractiveness of the renminbi because foreign holders may remain uncertain about convertibility, liquidity and the ability to move funds freely.

The restrictions create an incentive to search for alternative exits.

A 2026 working paper by Maggie Hu, Adrian Lee and Tālis Putniņš used blockchain and market data to estimate that capital flight accounted for more than one-quarter of Chinese Bitcoin exchange volume during the period studied. The researchers found that activity increased during periods of greater economic-policy uncertainty and produced a Bitcoin premium against the renminbi.^[12]

Bitcoin can facilitate capital movement, but its public ledger creates investigative opportunities. Once an address is connected to an exchange, device, business or real-world identity, related transactions can be clustered and followed.

Centralized stablecoins provide another path. They can move rapidly across borders, but issuers may freeze addresses, enforce blacklists and cooperate with regulators. Stablecoins also pass through centralized exchanges where identification and transaction records may be obtained.

Privacy coins reduce both forms of control.

When sender information, recipient information and transaction amounts are concealed at the protocol level, an observer may be unable to reconstruct capital movement merely by examining the blockchain. When conversion also occurs through peer-to-peer or decentralized markets, the state’s ability to identify the entry and exit points weakens further.

This does not make privacy coins perfectly invisible. Exchange records, compromised devices, counterparties, network metadata and user mistakes can still reveal information.

But they change the economics of surveillance.

Instead of receiving a permanent public transaction graph and attempting to identify its participants, an investigator may need to acquire information from endpoints, infiltrate services, correlate network traffic or compel disclosure from individual users.

The balance is dynamic rather than fixed. Improvements in zero-knowledge proofs, decentralized exchange infrastructure and network-layer anonymity reduce the information exposed by each stage of a transaction. States can respond through gateways, endpoint investigations and stronger enforcement, but those measures operate around the protocol rather than restoring a universal view inside it.

This creates an asymmetry. A capital-control system must identify a sufficiently large proportion of unauthorized flows to remain credible. A private monetary system does not need to defeat every investigation. It needs only to make comprehensive monitoring technically and economically impractical.

China’s broader doctrine of cyber sovereignty follows the same logic. Fang Binxing and Chinese policy documents treat networks, data and digital infrastructure as domains of national authority.^[13][14] A public blockchain challenges exclusive administration. A privacy coin challenges both administration and automatic visibility.

V. Who Holds the View Key?

Almost every modern digital-currency system uses cryptography. The decisive difference is not whether encryption exists.

It is whether privacy is optional or mandatory, whether disclosure makes the underlying transaction public, and who possesses the authority to reveal financial information.

In the e-CNY model, the state defines the institutional hierarchy through which transaction information can be obtained. Privacy may exist between ordinary participants, but authorized state access remains a system requirement.

Bitcoin removes the central issuer but publishes its transaction graph. Anyone can inspect the movement of funds, while specialized analytics can attempt to connect addresses and transaction clusters to real-world actors.

Zcash supports transparent and shielded transaction environments. Transparent addresses expose transaction information publicly in a manner comparable to Bitcoin. Shielded addresses use zero-knowledge proofs to conceal the sender, recipient and amount.

Zcash therefore offers optional privacy at the protocol level. The practical default depends on the wallet, exchange and address type. Some wallets support or encourage shielded activity by default, while transparent addresses remain part of the protocol. Users of shielded Zcash can share viewing keys, and Zcash has documented a draft payment-disclosure mechanism for proving details of a specific payment.^[15]

Privacy Pools, proposed by Vitalik Buterin, Ameen Soleimani and their co-authors, explore whether users can prove that funds do not originate from a designated prohibited set without exposing their complete transaction histories.^[16]

Monero applies privacy protections across ordinary transactions by default. Its protocol uses ring signatures, stealth addresses and Ring Confidential Transactions to conceal the sender, recipient and amount, although exchange records, endpoint information, network observation and user mistakes can still expose information.^[17]

Ryo Currency also applies privacy by default, but its disclosure model differs from Zcash’s dual transparent-and-shielded structure. Ordinary Ryo transactions conceal origins, destinations and amounts. A user can create a view-only wallet to disclose incoming activity without surrendering spending authority and can use transaction, spend or reserve proofs for defined verification purposes.^[31][33]

This is better described as optional disclosure than optional transparency. The underlying transaction does not become part of a permanently public transaction class. The user supplies the cryptographic information required to reveal or prove a defined fact.

The Chinese model places the power to reveal within the sovereign legal hierarchy.

Zcash allows value to move through either a transparent or shielded structure. For shielded activity, the holder can provide selected viewing access without giving away spending authority.

Ryo reverses the default. The transaction remains private unless the user deliberately supplies viewing information or cryptographic proof for a defined purpose.

Rejecting universal privileged access therefore does not mean rejecting auditing or accountability in every form. A business can maintain a view-only wallet. A sender can prove that a transaction occurred. A reserve holder can prove a defined balance. A zero-knowledge system can prove that rules were satisfied without publishing the user’s complete financial history.

The progression from public ledgers to optional shielding and then to privacy by default with selective disclosure can be understood as an evolution in digital bearer money.

Bitcoin demonstrated that ownership could be verified without a central issuer. Zcash demonstrated that validity could be verified without publicly exposing all of the information being verified. Privacy-by-default systems attempt to make that confidentiality the ordinary condition rather than a special transaction path.

This does not prove that one architecture will replace every other system. State currencies, transparent ledgers and regulated stablecoins each serve functions private currencies may not. But where fungibility, geopolitical neutrality and protection from economic intelligence are the principal requirements, default privacy is a more complete design than permanent public visibility.

VI. The Hard Trade-Off

The Strongest Case for State Visibility

A serious analysis should not dismiss China’s concerns as mere authoritarian hostility toward privacy.

Highly private digital money creates genuine enforcement problems. Governments investigate fraud, theft, corruption, sanctions evasion, terrorist financing, tax offences and organized crime through financial records. Transaction analysis can identify related accounts, locate stolen assets and reveal criminal networks.

A globally transferable privacy coin can also move more efficiently than physical cash. A private key can represent substantial value and cross a border without the monetary asset physically passing through a customs checkpoint.

China faces additional macroeconomic risks. Rapid capital flight could weaken the renminbi, accelerate reserve depletion, reduce liquidity within domestic financial institutions and force disruptive policy intervention. The expectation of depreciation can become self-reinforcing as residents attempt to move money abroad.

China can therefore make a rational state-security argument:

• Money is a public institution whose integrity affects the entire economy.
• Large anonymous capital flows can destabilize exchange-rate and banking systems.
• The state cannot enforce financial law without access to relevant evidence.
• Digital payments should protect users from commercial exploitation without creating immunity from targeted investigation.
• A sovereign government should not allow private protocols to displace its monetary authority without public consent.

Nor are such concerns unique to China. The Financial Action Task Force requires jurisdictions to impose anti-money-laundering controls on virtual-asset service providers and identifies anonymity-enhancing technologies and peer-to-peer activity as areas of heightened risk. The European Union’s 2024 anti-money-laundering regulation restricts anonymous crypto accounts and services designed to increase transaction obfuscation.^[18]

Democratic governments may provide stronger judicial review, political competition and legal protections than China, but they also seek identity-linked gateways, transaction records and investigative access.

The Strongest Case for Financial Privacy

The privacy argument begins from a different understanding of financial data.

A transaction history can reveal political donations, religious associations, medical treatment, journalistic sources, business relationships, travel patterns, personal networks and economic distress.

A complete payment history is not merely an accounting record. It is a map of a person’s life.

Privacy advocates therefore reject the assumption that the state should possess universal financial visibility merely because targeted investigations are sometimes legitimate. They distinguish disclosure after due process from surveillance by design.

A conventional investigation begins with a suspected offence and seeks relevant evidence. A universally traceable digital-currency system can reverse that order by collecting the complete financial graph first and determining its future uses later.

David Chaum and his co-authors have demonstrated that a central bank could theoretically issue digital currency while using cryptography to protect transaction privacy.^[19] Geoffrey Goodell, Hazem Al-Nakib and Paolo Tasca have similarly proposed a regulated digital-currency architecture using non-custodial wallets and privacy-enhancing cryptography.^[20]

Alex Gladstein of the Human Rights Foundation extends the argument from design to political consequence. His work describes how banking access, account freezing and payment surveillance can be used against activists, journalists and civil-society organizations.^[21]

Bitcoin offers censorship resistance and self-custody, but its public ledger remains traceable. Privacy-coin advocates argue that censorship resistance is incomplete when an adversary can map donors, counterparties and organizational activity.

There is also a narrower monetary argument that does not depend exclusively on human-rights commitments.

Money that can be frozen by an issuer contains counterparty risk. Money whose complete history is public exposes its holder to commercial, political and sanctions risk. Money whose transfer depends on another state’s infrastructure cannot be completely neutral between geopolitical blocs.

This does not make every privacy coin a suitable reserve asset. Reserve managers require deep liquidity, reliable custody, operational resilience, legal authority, price stability and the ability to mobilize assets during a crisis. Privacy coins presently satisfy some elements of neutrality more convincingly than they satisfy conventional reserve-management requirements.

VII. Russia and Iran: Who Receives Sovereign Privacy?

The contradiction becomes geopolitical when China’s strategic partners seek protection from Western financial power.

Russia and Iran have both faced extensive sanctions, restrictions on banking access and pressure on their ability to settle international trade. Both have incentives to develop financial channels that are harder for the United States and its allies to interrupt.

But “using cryptocurrency” can describe several politically different systems.

Russia’s Progression From Transparent Crypto to the Privacy Question

Russia changed its legal framework in 2024 to permit experimental cryptocurrency use in international settlements. In December 2024, the Russian finance minister confirmed that companies had begun using Bitcoin and other digital assets in foreign trade.^[22]

Reuters later reported that cryptocurrency had been used in parts of Russia’s oil trade with China and India. Intermediaries converted local-currency payments into digital assets and then into the currency ultimately required by the Russian exporter.^[23]

Transparent cryptocurrencies can work in this role because they possess global liquidity and can move beyond conventional correspondent banks. But they do not provide financial confidentiality.

Once an address is attributed to an oil company, trading intermediary, bank or state-linked institution, an external observer may be able to examine transaction timing, balances, related addresses and movement between counterparties. A public blockchain can remove the banking intermediary while creating a permanent source of economic intelligence.

Centralized stablecoins introduce another vulnerability. After Tether froze Russia-linked USDT associated with the sanctioned Garantex exchange, a Russian Finance Ministry official argued that Russia should develop domestic stablecoins linked to currencies other than the dollar.^[24]

A domestic stablecoin could remove dependence on a foreign issuer. It would not necessarily solve transaction visibility. If it circulates on a transparent ledger, foreign analytics firms and intelligence services may still reconstruct relevant financial relationships.

This creates a logical case for privacy-preserving settlement at the business or state level. It could conceal commodity buyers, strategic procurement, shipping relationships, reserve movements and the routes through which funds are converted and repatriated.

Privacy coins would nevertheless create difficulties for the Russian state. They generally possess less institutional liquidity than Bitcoin or major stablecoins and are harder to integrate into conventional accounting and compliance systems. More importantly, a protocol that hides Russian trade from Washington can also hide Russian capital from Moscow.

Iran: Crypto Access Becomes Part of the Sanctions Battlefield

Iran has developed a substantial cryptocurrency economy under sanctions and severe pressure on the rial.

In April 2026, US Treasury Secretary Scott Bessent publicly described Iran’s access to cryptocurrency as one of the channels targeted through the Treasury Department’s Economic Fury campaign. In June, the US Treasury sanctioned Nobitex and three other Iranian digital-asset exchanges, alleging that the platforms had supported sanctions evasion and state-linked financial activity.^[34][25]

Cryptocurrency is therefore no longer being treated as a marginal escape channel. Washington increasingly treats access to exchanges, stablecoins, wallets and digital-asset liquidity as part of the same sanctions battlefield as oil tankers, exchange houses and correspondent banks.

The campaign also demonstrates the limitations of transparent and centralized rails. Public blockchain activity can be followed, exchange infrastructure can be sanctioned and centralized issuers can be pressured to freeze identified assets.

At the same time, privacy coins are not merely theoretical or inaccessible inside Iran.

Monero is offered to Iranian users through at least three Iran-facing exchanges. Bit24 provides direct XMR purchase and sale services, OK Exchange maintains a Monero market and Tabdeal lists XMR among its available cryptocurrencies.^[35]

This does not establish that the Iranian government, the Central Bank of Iran or the Islamic Revolutionary Guard Corps uses Monero.

It establishes something different: domestic infrastructure through which citizens and businesses can acquire a privacy-by-default currency already exists.

For the Iranian state, cryptocurrency can protect sanctioned commerce from foreign pressure. For an Iranian citizen, Monero can protect savings and counterparties from both foreign surveillance and domestic observation.

The state may welcome the first use while fearing the second.

The Strait of Hormuz and the Zcash Signal

The Strait of Hormuz demonstrates how quickly the difference between cryptocurrency and private cryptocurrency can become strategically relevant.

During the 2026 conflict, reports indicated that Iran and IRGC-linked intermediaries were demanding or negotiating payments for vessel passage through the strait. Reported mechanisms included Chinese yuan, stablecoins and Bitcoin. The US Treasury later warned that passage payments made in fiat currency, digital assets, swaps or other forms could create sanctions exposure.^[36]

Ryo.news followed the development through The Yuan Ultimatum and Strait of Crypto.^[37]

Zcash rose sharply during ceasefire and Hormuz-payment speculation. Market discussion connected the rally with the possibility that privacy-preserving assets could become useful for strategic shipping payments. Contemporary market analysis also linked the move to broader risk sentiment and renewed demand for privacy coins rather than to a confirmed Zcash-specific adoption event.^[38]

No reliable evidence established that Iran accepted ZEC for passage. The strongest public reporting identified yuan, stablecoins or Bitcoin. Iran’s central bank later claimed that toll payments had been made in cash rather than cryptocurrency, contradicting some earlier reports.^[39]

The ZEC rally should therefore be treated as a market signal, not evidence of state adoption.

Its relevance lies in what the market recognized:

• A yuan payment remains visible to participating banks and governments.
• A stablecoin payment can be traced and potentially frozen by its issuer.
• A Bitcoin payment can be followed across a permanent public ledger.
• A properly shielded private payment can conceal the commercial relationship itself.

For a shipping company, privacy could protect cargo information, insurance arrangements, counterparties and negotiated transit terms. For Iran, it could conceal revenue and weaken sanctions analysis. For a ship owner or flag state, it could complicate auditing and proof of compliance.

The Strait of Hormuz revealed the strategic logic of privacy coins even without proving that one was used.

The Protocol Does Not Check Passports

China, Russia and Iran may attempt to reserve strong financial privacy for approved companies, state institutions and strategic trade while preventing citizens from using the same systems independently.

Regulated gateways can partially enforce that distinction. Governments can license exchanges, identify corporate wallet holders, require internal accounting records and demand transaction proofs or viewing information.

But the protocol itself cannot reliably distinguish a state-owned exporter from a private business, journalist or citizen moving savings abroad.

A system private enough to frustrate American transaction analysis is capable of frustrating Chinese, Russian or Iranian analysis. A zero-knowledge proof does not alter its privacy properties according to the nationality or political status of the person generating it.

This is why privacy coins can become more valuable to sanctioned states and more threatening to their domestic systems at the same time. Their strategic utility and political danger arise from the same neutrality.

VIII. China’s Sovereignty Trilemma

China’s international monetary strategy must reconcile three objectives that cannot be fully maximized at the same time.

Objective One: Reduce Foreign Financial Leverage

China benefits from payment channels that reduce dependence on dollar clearing, Western correspondent banks and infrastructure exposed to American sanctions.

In June 2025, People’s Bank of China Governor Pan Gongsheng called for a more multipolar international monetary system and announced the creation of an international e-CNY operations centre in Shanghai.^[26]

Objective Two: Internationalize Chinese Monetary Infrastructure

The renminbi’s role in international trade has grown, but restrictions on foreign participation, resident investment abroad, offshore liquidity and convertibility continue to constrain broader adoption.^[11]

China is attempting to overcome part of this limitation through payment infrastructure.

Project mBridge began as a collaboration among the BIS Innovation Hub, the People’s Bank of China’s Digital Currency Institute, the Hong Kong Monetary Authority, the Bank of Thailand and the Central Bank of the United Arab Emirates. It was designed as a shared multi-CBDC platform through which central and commercial banks could conduct direct cross-border settlement.^[27]

The BIS withdrew from the project in late 2024, after which participating central banks continued its development. By January 2026, cumulative mBridge transactions had surpassed US$55 billion, with the e-CNY accounting for approximately 95% of reported volume.^[28]

China’s e-CNY international operations centre, launched in Shanghai in September 2025, added cross-border payment, blockchain-service and digital-asset platforms intended to advance international cooperation and interoperability.^[29]

Objective Three: Preserve Domestic Monetary Control

China must simultaneously enforce capital controls, manage bank liquidity, prevent uncontrolled currency substitution and maintain the renminbi’s role as the domestic unit of account.

A system that allows money to leave the country privately and permissionlessly weakens each objective.

China’s preferred answer is therefore not anonymous international money. It is a state-governed international network in which participating governments replace foreign intermediaries without surrendering their own supervisory access.

The stability of that answer depends on participating states agreeing about who may observe, censor and reverse transactions.

China can construct corridors with Russia, Iran and other partners, but each state enters those corridors with different sanctions exposure, capital controls and security priorities. Western governments are unlikely to join infrastructure designed partly to reduce their financial leverage. Private commodity traders, shipping companies and manufacturers will continue comparing systems according to cost, liquidity, speed and confidentiality.

A state-governed network can become an important alternative without becoming universally neutral.

IX. The Sovereignty–Neutrality Frontier

China’s predicament is not unique. It reveals a structural tension at the centre of digital money.

The stronger the sovereign controls embedded in a currency, the more useful that currency becomes to the issuing state. Programmability can enforce policy. Identity can reduce fraud. Transaction limits can support capital controls. Supervisory access can assist investigations.

But the same properties reduce the currency’s neutrality to outsiders.

A foreign government knows that access may be restricted after a diplomatic rupture. A company knows that payments may be inspected or reversed. A reserve manager knows that the issuer can change rules. A dissident knows that privacy exists at the discretion of an authority whose future conduct cannot be guaranteed.

Conversely, an asset becomes more neutral as no participant can grant itself special powers. Gold is not the liability of another state. Bitcoin has no issuer capable of changing its maximum supply or freezing an address. Privacy coins extend the principle by reducing the informational advantage available to every state.

Neutrality is not binary. It is a frontier along which monetary systems trade sovereign control against equal treatment.

This is the global monetary paradox.

A multipolar world can build multiple sovereign payment blocs. It cannot eliminate the need for a bridge between parties that do not fully trust one another.

That bridge must either be governed by a negotiated institution—or embodied in an asset whose rules do not privilege any participant.

X. The Strange Convergence: Central Banks and Network States

The most unexpected implication is that central banks and network states—institutions at opposite ends of the political spectrum—can converge on similar monetary requirements.

A sanctioned central bank wants reserves that cannot be frozen by a rival government. A network state wants a treasury that cannot be frozen by the territorial state it is attempting to exit.

A state-owned exporter wants strategic trade hidden from foreign intelligence. A digital community wants donors, salaries and internal relationships hidden from political adversaries.

A reserve manager wants an asset that remains usable when custodial relationships fail. A network polity wants capital that remains usable when platforms de-bank it.

The political motivations are different. The central bank seeks to preserve state power. The network state seeks to construct power outside the existing state.

But the capital layer can converge.

This is where sovereign gravity becomes important. Credible, hard-to-seize capital attracts the infrastructure needed to hold, trade, lend, insure and govern it. As infrastructure deepens, the asset becomes more useful. As usefulness grows, the surrounding network gains institutional weight.

The sequence described in From Network Union to Network State depends on that gravity. Identity without capital remains a community. Capital without coordination remains a market. Capital that attracts coordination can become the foundation of a polity.

XI. Could Privacy Coins Become Central-Bank Reserve Assets?

No publicly disclosed central-bank reserve portfolio identified in the sources reviewed includes Monero, Zcash, Ryo or another privacy coin.

The present evidence is more limited—but still significant.

In March 2025, the United States government established a Strategic Bitcoin Reserve capitalized primarily with forfeited bitcoin. This is a federal strategic holding rather than an asset held by the Federal Reserve, but it established the principle that a major government may retain decentralized digital assets for strategic purposes.^[40]

In November 2025, the Czech National Bank created a US$1 million test portfolio containing Bitcoin, dollar stablecoins and a tokenized dollar deposit. The bank explicitly stated that the portfolio was experimental and did not form part of its international reserves. Its purpose was to build operational knowledge concerning custody, transactions, security and compliance.^[41]

These cases do not demonstrate privacy-coin adoption. They show public institutions moving from theoretical discussion toward direct operational experience with decentralized digital assets.

What Reserve Managers Actually Require

Central-bank reserve managers traditionally balance safety, liquidity and return. Official reserves must remain controlled by and readily available to the monetary authority for foreign payments, intervention or emergency liquidity.^[42]

Privacy coins possess several potential reserve-like properties:

The Digital-Gold Comparison

Gold is the closest established example of neutral reserve money.

Physical gold held domestically is not the liability of a foreign government or institution. It can protect against external reserve freezes. The trade-off is mobility: gold kept beyond foreign legal reach becomes harder to mobilize rapidly for international payments or currency intervention.^[43]

A mature privacy-preserving digital asset could theoretically offer a different combination. It could be held directly, transferred internationally and settled without publicly revealing the balance, transaction or counterparty.

Today, however, privacy coins remain more volatile than established reserve assets, possess smaller markets, face legal restrictions and lack the custody, derivatives and institutional infrastructure required for large official portfolios.

The strongest reserve thesis is therefore not that central banks are about to replace dollars or gold with privacy coins.

It is that geopolitical fragmentation increases demand for an asset with the following combination:

• No foreign sovereign issuer.
• No centralized freezing authority.
• No publicly visible reserve balance or settlement graph.
• Strong fungibility.
• Global digital transferability.
• Selective disclosure for internal audit and proof.

Very few assets attempt to provide all six.

A Plausible Adoption Sequence

If privacy coins enter public-sector reserve management, adoption is unlikely to begin with large allocations in the liquid foreign-exchange tranche.

1. Technical experimentation: central banks and finance ministries test custody, proofs, accounting and market access.
2. Strategic government holdings: states retain seized or acquired assets as long-term stockpiles.
3. State-linked settlement: approved companies use private assets for commodity, shipping or sanctions-sensitive trade.
4. Emergency reserves: governments maintain small holdings outside foreign custody as insurance against exclusion.
5. Investment-tranche allocation: a central bank or sovereign fund adds a limited position after liquidity and infrastructure improve.
6. Broader reserve recognition: only after market depth, price resilience, custody standards and international convertibility become sufficient.

China may resist this development more strongly than many states because privacy coins threaten its capital controls. Yet China also has one of the strongest strategic incentives to reduce dependence on assets and payment channels exposed to American authority.

That contradiction may eventually force Beijing—and other central banks—to distinguish between privacy coins as unrestricted domestic money and privacy-preserving decentralized assets as externally neutral strategic reserves.

XII. The Two-Layer Monetary Internet

The future monetary system is unlikely to produce a total victory for either state-controlled digital currencies or permissionless privacy coins.

It is more likely to divide into two interacting layers.

The permissionless layer will not exist entirely beyond government reach. Users interact with devices, internet connections, exchanges, merchants and real-world counterparties.

Network observation can also undermine ledger privacy. Research has shown that peer-to-peer transaction broadcasts may expose IP-related and timing information, allowing observers to correlate blockchain activity with network origin.^[30]

Governments can regulate commercial gateways, investigate endpoints and prosecute unlawful conduct.

But privacy systems can make universal financial surveillance technically, economically and legally more difficult.

The state-network layer will probably dominate domestic payments for the foreseeable future. The privacy layer becomes most valuable where the cost of political visibility is highest.

Its growth is not guaranteed. Liquidity, usability, legal access and infrastructure will determine which systems survive. But the demand it addresses is structural rather than ideological: counterparties who do not trust one another still require a way to settle.

Conclusion: Money That Privileges No Sovereign

China wants a monetary system capable of operating beyond Washington’s control.

It does not want a monetary system capable of operating beyond Beijing’s control.

The digital yuan resolves this distinction by creating limited privacy at the user level while retaining traceability within the sovereign institutional structure.

MBridge and the e-CNY’s international infrastructure extend the same logic across borders. They can reduce reliance on Western-controlled settlement without abandoning central-bank issuance, approved participation or national authority.

Russia and Iran reveal the attraction and the limit of that model. Both benefit from payment channels that are harder for the United States to interrupt. Neither government has shown an equivalent desire to make domestic financial activity invisible to itself.

Privacy coins refuse that division.

They do not provide one cryptographic standard for governments and another for citizens. The same protocol protects the exporter and the dissident, the central bank and the network community, the sanctioned state and the person escaping its capital controls.

That neutrality creates genuine regulatory problems. It can conceal criminal activity, capital flight and sanctions evasion. It can also protect commercial secrets, lawful association, strategic reserves and human autonomy.

The mistake is to treat this only as a conflict between privacy and law enforcement.

It is also a conflict between two architectures of sovereignty.

The state network begins with territory, recognition and law, then extends authority into identity, capital and coordination.

The network state begins with identity, capital and coordination, then attempts to acquire territory and recognition.

Both require money. Both require reserves. Both require settlement that remains functional when an adversary attempts to exclude them.

This is the strange convergence at the centre of the article.

The digital yuan is the State Leviathan perfected: money whose code strengthens sovereign power.

Privacy coins are an expression of the Network Leviathan: money whose code limits every sovereign’s privileged access.

No privacy coin presently has the liquidity, custody infrastructure, legal recognition or price stability required to displace major reserve assets. That limitation is decisive and should not be romanticized.

But reserve systems evolve when their political assumptions fail.

The freezing of sovereign reserves, sanctions against exchanges, the surveillance of public ledgers and the fragmentation of payment systems all increase the value of assets that are not liabilities of another state.

Gold supplied that neutrality to an earlier monetary order. Bitcoin supplied issuer independence to the first generation of decentralized digital money. Privacy-preserving systems add the missing property of confidential settlement.

China’s contradiction will not be resolved by choosing between the dollar and the yuan. It will be resolved by whether the emerging world of monetary blocs can function without a settlement asset outside every bloc.

The state-network layer will continue to process taxes, salaries, regulated banking and domestic commerce.

The permissionless privacy layer will grow wherever the cost of political visibility exceeds the value of sovereign supervision.

Its first large users may be citizens escaping unstable currencies, companies protecting counterparties and sanctioned states defending trade.

Its later users may include public institutions that once regarded privacy coins only as a threat.

That outcome is not inevitable. Privacy currencies must still solve liquidity, custody, governance, usability and institutional access. Projects that fail to build durable networks will remain marginal regardless of the quality of their cryptography.

But the direction of the monetary problem is now visible.

China is building money sovereign enough to resist Washington. The next monetary order may require money neutral enough to resist everyone.

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