Crisis Simulation Maps National Security Risks of Digital Currency

Harvard Kennedy School’s JFK Jr. Forum was transformed into the White House Situation Room Tuesday with Harvard and MIT faculty and former government officials portraying National Security Council members and other officials charged with developing—in an hour’s time—options for the president to respond to a national security crisis.

“Digital Currency Wars: A National Security Crisis Simulation” was organized by the Belfer Center’s Economic Diplomacy Initiative.

Video Highlights:

See the full recording of the event on the IOP website »

The date of the simulated crisis: Nov. 19, 2021—two years from now.

The situation: North Korea successfully launched a warhead-tipped missile into the Philippine Sea near Guam—openly defying financial sanctions by using China’s new and extremely popular digital currency (digital yuan) to hide payments for arms, raw nuclear materials, rocket fuel, and other sanctioned products. Since these transactions operate on Chinese-owned infrastructure, North Korea’s economic activity is hidden from U.S. authorities.

Belfer Center Co-Director Eric Rosenbach—portraying the National Security Adviser (NSA)—opened the National Security Council emergency meeting by recapping the situation and asking the Cabinet and others present for response actions to present to the president both to North Korea’s missile test and to the national security impacts of China’s digital yuan. Deputy NSA Aditi Kumar briefed the team on the  latest information regarding the missile situation and what was known about North Korea’s use of the digital yuan.

During the next hour, the NSC discussed, debated, sparred, and shared humorous quips over potential strategies to address the crisis.

Ash Carter, as Secretary of Defense, said that while the recent North Korea missile test showed  progress in the regime’s missile efforts, it didn’t immediately change anything overnight for the U.S.

“We’re in a tight spot,” said Nicholas Burns, who as Secretary of State noted the twin crises the U.S. faced: North Korea’s nuclear ambitions and China’s increasing economic power and competitiveness. “We need options if sanctions are not immediately available to us.”

Lawrence Summers, as Secretary of the Treasury, said Washington’s ability to sanction North Korea was almost completely dependent on the degree to which it can achieve cooperation with the Chinese, who control the digital yuan that Pyongyang is using to hide its economic activities. Carter questioned that approach, noting the consistent failures of U.S. governments over the past 30 years in trying to persuade China to use its leverage on North Korea.

Jennifer Fowler, as Director of National Intelligence, reminded the team that China’s commercial banks are “in the middle” of the digital yuan issue. Since they want to continue doing business in the U.S., she suggested, the U.S. should consider what pressure might be put on them to encourage cooperation.

Gary Gensler, in the role of Assistant to the President for Economic Policy, said the fact that China is moving money outside of the long-used SWIFT system is a serious challenge. Summers agreed, pointing out that Washington has relied on the SWIFT system as a critical tool to influence activity in the face of national security threats. With China’s digital currency gaining power, he said, “We are in the danger of losing that.”

Acting as the U.S. Ambassador to China, Richard Verma encouraged the team to think about cooperation, to proceed with caution, and to prevent escalating conflicts with China. He mentioned making a recent cell phone call to the President from an outdoor restaurant in China to give her an update on another issue—a lighter moment in the simulation that drew chuckles from the audience.

As the team discussed ways to strengthen the SWIFT money transfer system, breaking news from “BCN,” shared via a large screen above the Situation Room table, reported that the SWIFT network had been hacked, resulting in the theft of $3 billion. Intelligence agencies suggested North Korea was behind the attack.

Meghan O’Sullivan, as Vice President, asked if it was conceivable that North Korea could carry out the theft on its own. Some thought it could, while others disagreed.  

Neha Narula, as the administration’s new Digital Currency Czar, said the U.S. electronic transaction systems have not evolved fast enough to stay secure in the increasingly digital world. “The old system isn’t cutting it anymore.” She argued that the U.S. should develop its own digital currency.

Summers argued that if the U.S. had a digital currency, “we couldn’t interfere one whit with the ability of others” to use theirs. It could increase conflict and set us on the path to an “entirely splintered world,” he said. Instead, Summers said, we should harden the SWIFT system—which he argued could be done in six months.

Rosenbach, reviewing the team’s summary of options for the president, said the NSC would propose that the president contact China’s President Xi Jinping about working together to prevent North Korea from advancing its nuclear agenda; modernize and harden our SWIFT system; and explore options for a U.S. digital currency. 

Audience questions at the conclusion of the simulation included one about how testy real Cabinet meetings get. Summers responded that while they might not be as dramatic as this simulation, members do and should express their opinions and disagree with others in order to get different views on the table.

Background:

The simulation was conceived and organized by Aditi Kumar, Executive Director of the Belfer Center and Director of the Center’s Economic Diplomacy Initiative, which she leads with Nicholas Burns and Lawrence Summers.  To prepare for the event, Kumar worked for several months with a group of faculty, staff, and especially a team of students who conducted the background research and helped create the scenario in addition to serving as chiefs of staff for the participants during the simulation. 

Participants:

• National Security Adviser: Eric Rosenbach (Co-Director, Belfer Center; former Cyber Czar, Pentagon)
• Deputy National Security Adviser: Aditi Kumar (Executive Director, Belfer Center; former Principal at Oliver Wyman and Project Manager, World Economic Forum)
• Secretary of Defense: Ash Carter (Belfer Center Director; former Secretary of Defense)
• Secretary of State: Nicholas Burns (Founder of the Center’s Future of Diplomacy Project; former Ambassador and Under Secretary of State for Political Affairs)
• Secretary of Treasury: Lawrence Summers (Charles W. Eliot University Professor and President Emeritus of Harvard; former Secretary of the Treasury)
• Vice President: Meghan O’Sullivan (Director of the Geopolitics of Energy Project; former Special Assistant to the President and Deputy National Security Adviser for Iraq and Afghanistan)
• Director of National Intelligence: Jennifer Fowler (Director, Brunswick Group, D.C. and former Deputy Assistant Secretary for Terrorist Financing and Financial Crimes in the Department of Treasury)
• Ambassador to China: Richard Verma (Vice Chairman and Partner, Asia Group; former Ambassador and Assistant Secretary of State for Legislative Affairs)
• Assistant to the President for Economic Policy: Gary Gensler (Professor of Practice of Global Economics and Management, MIT School of Management; former Chairman of the U.S. Commodity Futures Trading Commission)
• Assistant to the President for Digital Currencies: Neha Narula (Director of the Digital Currency Initiative, MIT Media Lab; former senior software engineer, Google)

Read the Harvard Gazette write-up »