The New Divide: Why Liquidity, Not Land, Defines Sovereignty

Canada’s quiet technocratic pivot reveals a new global split: mastery of cash flows versus sovereign leakage.

Please note: This article, like all my others, is not political. I make no specific endorsement of any political leader or party anywhere in the world.

The electoral victory of Canadian Prime Minister Mark Carney, a career central banker, wasn’t just politics — it signals a global pattern: liquidity, not land, increasingly underpins sovereignty. Image source

“Lead us, Big Daddy,” a woman screamed at an event for Canadian Prime Minister and Liberal Party leader Mark Carney in Scarborough, Ontario, this past April.

All cringe aside, the moment marked a clear catalyst in Canadian political life. Just a few months earlier, the upcoming federal election looked like a nightmare for the Liberals: polls showed only 16% of Canadians planned to vote for the party. Carney’s predecessor, Justin Trudeau, had been effectively hounded out of office amid intensifying calls for his resignation, leaving Conservative leader Pierre Poilievre poised to take power.

Then, a parallel chain of events unfolded with stunning speed, galvanizing the Canadian system in a completely different direction. The November election of U.S. President Donald Trump brought new tariffs on Canadian goods and loud calls to make Canada “the 51st state.” The rhetoric infuriated Canadians, with many donning Trump-style hats reading “Canada is not for Sale” and “Canada is Already Great.” By March, Carney — a reserved former central bank chief — won the Liberal Party leadership with nearly 86% of the vote and became Prime Minister. He had never held elected office and became only the fourth Prime Minister in Canadian history to take power without even a seat in the House of Commons.

The April 28 election delivered results no one had predicted just months earlier: Carney’s Liberals handily defeated the opposition and gained seats, ending up just three shy of a majority government.

Carney’s unexpected rise represents more than a resurgence of economic nationalism. It signals a deeper shift in how Canadians imagine sovereignty and resilience in a world increasingly shaped by external shocks underpinned by liquidity systems. Canada, with its highly centralized, transparent, and tightly regulated liquidity architecture, responded to this threat the way it knows best: by electing a technocratic central banker to steer it through crisis. By rehabilitating a party that, after a decade in power, was headed for electoral obscurity, the system made clear what it wanted most — the kind of technocratic leadership that only a regime built on trusted, centralized liquidity could produce.

Liquidity as the new foundation of sovereignty

Sovereignty has long been understood as the power to control territory and enforce borders. Maps and armies were the ultimate symbols of statehood, the concrete markers of a government’s ability to project authority. Yet in an era defined by transnational capital, global supply chains, and instant digital transactions, this territorial framing feels increasingly outdated.

Today, the true backbone of sovereignty is liquidity: a state’s capacity to generate, anchor, and direct flows of value (money, especially digital payments). Control over liquidity determines whether a government can maintain social contracts, fund security apparatuses, and stabilize domestic markets in the face of external shocks.

Here lies the critical schism: states that consolidate liquidity — through centralized, transparent, and trusted systems — can reinforce sovereignty and adapt under pressure. In contrast, states that suffer from liquidity leakage, where capital quietly escapes into offshore havens and private survival networks, find their sovereignty hollowed from within long before any dramatic collapse becomes visible.

Whether through shadow reserves, offshore trusts, or digital asset flight, the silent migration of liquidity reveals where power truly lives — and where it is quietly dying. In this sense, the future of sovereignty will be decided not at the border, but in the bloodstream of value flows.

Under-regulated, opaque systems and sovereign leakage

Sovereignty is not lost all at once; it erodes quietly through small fractures in a state’s liquidity architecture. In under-regulated and opaque systems, value escapes through informal circuits, fueling rival power centers and weakening the state’s core. While these systems may appear centralized on the surface, they often conceal hidden leakage that hollows out actual sovereignty far more effectively than any external invasion.

China — scam centers and gray zone liquidity

China is often viewed as a monolith of centralized control, yet beneath this surface lies a fragmented landscape of gray zone liquidity. While the state nominally controls its financial system through strict capital controls and centralized directives, it simultaneously tolerates and indirectly benefits from peripheral cash ecosystems — especially in Southeast Asia. As we explored in my China Grey Zone series, Beijing enables these liquidity flows as a workaround to external pressure — using them to evade tariffs and sanctions. However, this same strategy seeds fragmentation and empowers peripheral actors, ultimately undermining the very sovereignty it seeks to protect

Scam centers in Myanmar, Cambodia, and Laos serve as offshore liquidity vents, recycling funds through cryptocurrency rails, informal money brokers, and online gambling channels. Chinese actors, including local officials and security services, extract rents and facilitate the expansion of these networks, often under the guise of “development” or “business diplomacy.”

These scam economies and gray financial nodes hollow sovereignty from within. The Chinese state becomes both participant and hostage: benefiting from offshore cash generation while losing consolidated oversight over the system. Beneath the narrative of strong central command lies an archipelago of liquidity escape routes that empower non-state actors, local elites, and transnational crime networks.

Ironically, Beijing has begun pushing to crack down on these scam centers, despite many being indirectly funded or facilitated by state-backed Belt and Road Initiative (BRI) infrastructure and investment projects. This reactive enforcement highlights the internal contradiction: the state depends on gray liquidity flows to sustain influence abroad, yet those same flows undermine its long-term strategic coherence. The result is a sovereignty that appears centralized but is riddled with silent fractures, primed for instability when crisis hits.

Iran — proxies and semi-autonomous liquidity

Iran’s strategy of regional influence hinges on proxy groups like Hezbollah, the Houthis, and various militias in Iraq and Syria. Initially, Tehran’s liquidity flows into these networks served as direct strategic extensions of state policy. However, over time, these proxies have developed semi-autonomous funding channels, creating parallel financial ecosystems that increasingly operate beyond Tehran’s direct control. In this way, proxies funded to advance Iranian security needs could end up undermining its sovereignty.

Hezbollah’s diversified revenue streams — including narcotics, counterfeit goods, and cryptocurrency donations — allow it to make independent strategic decisions, sometimes even contradicting Iranian preferences. The Houthis, meanwhile, have leveraged local commodity taxation, remittance interception, and crypto-enabled remittance corridors to create a self-sustaining war economy. Similarly, Iraqi militias — while historically reliant on Iranian backing — have acted on their own imperatives, launching attacks against U.S. forces even when Tehran has explicitly called for restraint.

These developments mean that Tehran’s once-coherent liquidity projection is now fragmented. Proxy actors can launch attacks based on their independent liquidity systems rather than Iran’s overarching strategic plan. Although Tehran still exerts enormous influence, its control is far from paramount, leading to ceded sovereign control. In trying to externalize sovereignty through proxies, Iran has inadvertently fostered competing centers of power, leaving its regional influence more unstable and less predictable.

Pakistan — ISI’s liquidity and Taliban autonomy

Pakistan’s Inter-Services Intelligence (ISI) has long used liquidity as a tool of strategic depth, funneling cash and resources into Afghan Taliban networks to maintain leverage over Kabul and regional dynamics. However, this liquidity strategy has boomeranged.

The Taliban, once reliant on Pakistani patronage, have built independent cash economies rooted in cross-border taxation, smuggling networks, narcotics trade, and local resource levies. Over time, they have transformed into an alternative liquidity state operating parallel to, and beyond, Pakistani control.

As these autonomous revenue streams grew, Pakistan lost what grip it had over critical border regions, ceding effective sovereignty to a hybrid armed governance structure. This leakage of liquidity from a nominally centralized intelligence service into independent militant coffers has weakened Islamabad’s ability to enforce internal coherence, resulting in a fragmented and fragile sovereignty especially visible in the tribal borderlands.

Technology acceleration

Technology magnifies these dynamics exponentially. Digital payment systems, cryptocurrency rails, and encrypted apps allow liquidity to escape state oversight in real time — especially under conditions of corrupt officials, weak regulatory frameworks, and systemic opacity. Sovereignty is no longer eroded slowly over decades through smuggling and informal markets; it is now undermined at the speed of code, with value moving across borders and into rival hands in seconds rather than years.

The alternative: Canada’s immune response

While many states struggle with fragmented liquidity systems and sovereign leakage, Canada offers a striking systemic contrast. Despite its vast geography and strong provincial identities, Canada’s financial backbone is extraordinarily centralized and coherent. Just six major banks dominate the landscape, operating under tight, transparent regulation overseen by an all-powerful central bank.

This architecture is often misunderstood by outside observers. Commentators like Peter Zeihan, for example, argue that Canada is economically disunified because each province trades more with the U.S. than with other provinces. However, this view misses a deeper structural reality: Canada’s liquidity flows remain centrally anchored and carefully stewarded, allowing it to act as a unified economic organism despite external trade patterns.

When faced with external shocks, such as dramatic tariff increases and talk of trade wars, states with centralized liquidity systems do not turn to military defenses or populist strongmen. Instead, they empower technocratic stewards who can manage financial flows and stabilize internal value networks. Mark Carney’s unexpected rise is the perfect embodiment of this “liquidity immune system” response. The system is not perfect, as Canada has experienced record capital

But the system is not perfect. Canada has seen record capital outflows in recent months—over $84 billion in net securities flight over just four months —highlighting the difference between formal capital flight and that facilitated by shadow liquidity systems. These outflows move under the purview of a strong regulatory regime, flowing through transparent, market-based channels rather than illicit networks siphoning wealth into opaque offshore systems beyond legal reach. This contrast underscores a critical point: while regulated liquidity can be steered even in crisis, shadow liquidity operates on a separate plane—adaptive, opaque, and beyond the grasp of state policy mechanisms.

A former central banker with no electoral background, Carney symbolizes the Canadian instinct to protect sovereignty not through barbed wire or nationalist slogans, but through disciplined monetary governance and systemic financial consolidation. His ascent reflects a collective preference for liquidity resilience over theatrical displays of territorial control — a choice that sets Canada apart in a world where many states increasingly lose coherence under liquidity stress, especially as new technologies accelerate and camouflage capital flight with unprecedented speed.

Not only would the tightly regulated Canadian system not leak liquidity into actors that fundamentally threaten its sovereignty, its system is so consolidated and trusted that when faced with external threats, it reflexively empowers technocratic stewards rather than alternative power centers.

Conclusion: No moral judgment — only structural divergence

What happens when a state can no longer defend its financial bloodstream?

This article is not a moral critique of states that experience liquidity leakage, nor an endorsement of those with highly centralized liquidity systems. Historical and institutional asymmetries shape each country’s financial architecture in ways that cannot be quickly or easily rewritten. Canada, for example, benefits from an industrial and legal foundation that predates those of many developing countries by over a century — a foundation that enables tighter regulatory oversight and more trusted central institutions.

What matters is the structural reality: future sovereign power will be defined by a state’s ability to generate, anchor, and defend its liquidity flows. The decisive contests of the coming decades will not be fought on territorial frontiers alone but within the hidden arteries of capital and value transfer.

In this new era, sovereignty will belong not to states that hold ground, but to those who master the circulatory systems of capital.