Will Bitcoin Strengthen Or Weaken Us Dollar Dominance?

The reported decease of US dollar power has been greatly exaggerated. The dollar’s demise has been many times prophesied, supposedly threatened by immoderate number of currencies including nan euro, nan yuan, and caller hints of a gold-backed rate from nan BRICS countries (Brazil, Russia, India, and China).

Will nan US dollar support its world dominance? Is location a domiciled for bitcoin successful US policy?

In a caller insubstantial titled “The Treasury Standard: Causes and Consequences,” which was published successful an edited measurement of articles related to bitcoin, economist and AIER SMP Senior Fellow Joshua R. Hendrickson explores nan humanities narration betwixt cardinal banking and nationalist security. He finds that nan US dollar power of nan world monetary strategy and associated request for US Treasury bonds helps reenforce America’s world subject regime. 

Further, nan insubstantial demonstrates really American officials and policies person actively contributed to expanding this system. 

Hendrickson dubs this strategy “The Treasury Standard.” His insubstantial has important implications for nan early of bitcoin and really it mightiness beryllium treated by governments.  

Read ‘The Treasury Standard’ 

There is overmuch to for illustration successful “The Treasury Standard.” First, Hendrickson devotes 2 afloat sections to nan government’s humanities domiciled successful money. Section 2 starts pinch theories of commodity money and coinage earlier moving to bills of speech and banknotes. The evolutionary process he describes fits nan humanities evidence.

Alternative theories stress the domiciled of nan state successful creating money and determining nan type of money used. As Hendrickson correctly notes, however, governments did not create money. Rather, they person continuously intervened successful nan monetary strategy to use themselves done “debasement, devaluation, and rate issuance,” often astatine nan disbursal of nan public. Despite specified abuses, emergency spending powers are captious to nan preservation of nan federation itself. These costs and benefits must equilibrium successful bid to minimize harm to nan nationalist and maximize long-run stability.

In nan lawsuit of nan United States, nan ascendance of nan Treasury Standard strengthened nan increasing narration betwixt nationalist information and nan monetary system. It solidified nan Treasury’s world power by making overseas powers reliant connected US policy. However, persistent deficits, arsenic knowledgeable successful caller decades, could destabilize this equilibrium.

Second, Hendrickson addresses an rumor that is often avoided by economists: nan domiciled of argumentation successful creating nan Treasury Standard. Economists for illustration elemental stories astir nan effect of value controls and different policies, which mightiness see superior controls aliases speech complaint manipulations successful world finance. In opposition to nan accustomed economical approach, Hendrickson describes nan Treasury Standard arsenic a operation of coordinated policies and governmental unit to execute a stated end: dollar dominance.

Policy Implications

While Hendrickson does not talk bitcoin straight successful nan paper, he nevertheless provides immoderate penetration for reasoning astir bitcoin-related policies. Should nan US authorities promote bitcoin adoption? Should it clasp bitcoin arsenic a reserve asset? How would specified pro-bitcoin policies impact its fiscal and monetary policy?

International Bitcoin Adoption

On nan surface, greater bitcoin take would look to undermine nan Treasury Standard. But that only holds if 1 assumes those adopting bitcoin would person different utilized nan dollar. If, instead, 1 expects bitcoin to displace different awesome currencies, past its ascension mightiness bolster nan Treasury Standard by functioning arsenic a neutral dollar alternative. 

The Treasury’s determination to weaponize nan dollar done sanctions and exclusions from nan SWIFT slope routing web has made nan dollar little charismatic to overseas governments. Foreigners are already starting to move distant from nan dollar, and overseas governments are actively processing dollar alternatives. In this context, nan US benefits—that is, suffers less—from nan take of a neutral replacement for illustration bitcoin. Ideally, nan Treasury would for illustration foreigners to proceed utilizing nan dollar, but if they do move distant from nan dollar, nan Treasury would for illustration them to move to bitcoin alternatively than to nan yuan, ruble, aliases immoderate different rate controlled by 1 aliases much rival governments. 

Of course, bitcoin is only useful to nan US successful this discourse if foreigners for illustration it to nan disposable alternatives. The occurrence of nan Swiss franc suggests they mightiness usage bitcoin arsenic a reserve plus aliases for usage successful world trade. Due to its well-known unchangeable semipermanent value, nan Swiss franc is wide utilized successful world waste and acquisition arsenic a vehicle currency–that is, betwixt parties successful non-Swiss nations, not pinch nan state of Switzerland itself. As I have discussed elsewhere, “despite Switzerland having only nan 19th-largest system successful position of GDP, nan Swiss franc is nan 4th astir commonly utilized rate successful world waste and acquisition and nan 6th astir wide held overseas reserve currency.” Thus, location seems to beryllium beardown request for a unchangeable rate successful world trade, and bitcoin offers moreover much information against nan consequence of monetary description s than nan Swiss franc. 

Government Bitcoin ‘Hodling’

What if nan Treasury itself were to clasp (or “hodl” successful crypto lingo) bitcoin, arsenic successful proposals specified arsenic nan Strategic Bitcoin Reserve? As Hendrickson has elsewhere explained, holding bitcoin would supply stableness done diversification of nan government’s assets, creating an action that could beryllium exercised if nan Treasury’s fiscal position deteriorates. The government’s committedness to bitcoin could person immoderate self-reinforcing worth of stabilizing nan price, mounting expectations and quelling complaints of nan plus being intrinsically worthless.

Despite these benefits, it is not clear what effects “hodling” bitcoin would person connected nan national government’s fiscal position. A higher bitcoin value (which astir Bitcoiners return for granted, but galore others question) would alteration a bitcoin-holding authorities to salary down immoderate of its debt. But it would not require it. In fact, politicians mightiness respond to a higher bitcoin price—or, moreover an expected higher bitcoin price—by spending moreover more! Thus, a bitcoin reserve whitethorn not person nan effects galore Bitcoiners expect unless it is coupled pinch different policies that constrain spending.

BitBonds

Another connection would spot nan authorities rumor Treasury bonds that are astatine slightest partially backed by bitcoin, pinch immoderate profits realized from nan bitcoin backing shared betwixt investors and nan government. These “BitBonds,” proponents argue, would let nan authorities to return advantage of nan consequence simplification associated pinch diversification and, successful doing so, little nan government’s costs of borrowing. Some backstage companies are already taking a akin attack successful bid to finance existent property loans. The BitBonds connection is besides akin to a proposal by Judy Shelton, which would spot nan US Treasury rumor bonds backed by gold. 

As pinch nan bitcoin reserve proposal, it is not clear that issuing BitBonds would do overmuch to amended nan government’s financial position. Such proposals, connected their own, do not constrain national spending. Indeed, they relax nan existing constraints connected spending, which mightiness promote politicians to walk moreover more.

Bitcoin and nan Fed

While nan fiscal benefits of a bitcoin reserve aliases BitBonds are unclear, immoderate constituent to imaginable monetary benefits. Would nan constitution of a bitcoin reserve aliases nan issuance of BitBonds supply an effective constraint connected nan actions of nan Fed? Maybe. The reply depends connected really specified efforts were implemented.

Holding bitcoin arsenic a reserve plus does not straight constrain nan Fed. Domestic holders of Federal Reserve notes person not been capable to redeem those notes for immoderate plus since we went disconnected nan golden standard successful 1933. Even if nan Fed still owned golden coming (which it does not), it would not beryllium required to redeem dollars for gold. Similarly, if nan Fed were to clasp bitcoin reserves, it would beryllium nether nary responsibility to redeem its notes for bitcoin. It mightiness waste its bitcoin to protect nan purchasing powerfulness of nan dollar, should nan request for dollars decline. But it would not beryllium required to do so. Hence, holding bitcoin—on its own—would not constrain nan Fed. It would simply springiness nan Fed an action akin to that provided by different assets nan Fed holds. 

Although holding bitcoin would not constrain nan Fed, nan existence of bitcoin might. If bitcoin were to supply a neutral dollar replacement successful world finance, arsenic antecedently discussed, it would supply an replacement for dollar users concerned astir higher inflation. The Fed would person to return that exit action into relationship erstwhile mounting policy. Hence, nan Fed’s expertise to devalue nan dollar mightiness beryllium constricted if bitcoin provides dollar users pinch an charismatic alternative. To beryllium clear: I do not judge bitcoin represents a superior threat to nan dollar successful nan adjacent future. However, each changes are marginal, and marginally higher ostentation would promote immoderate dollar users to trust much heavy connected alternatives, including bitcoin.

The imaginable of wide switching to bitcoin is particularly pertinent erstwhile considering utmost scenarios. Consider, for example, what would hap if nan Treasury’s fiscal imbalances proceed to nan constituent of adjacent default. Many presume nan Fed would intervene to support nan economy, lowering liking rates and inflating nan dollar to debar fiscal default. However, bitcoin—and, indeed, immoderate reliable dollar alternative—would limit nan Fed’s expertise to do so. Moreover, a wide knowing that nan Fed will beryllium constricted successful its expertise to mitigate nan harm of default raises nan expected costs of default. Hence, nan beingness of bitcoin mightiness promote politicians to rein successful excessive spending aliases raise further gross successful bid to debar approaching default successful nan first place.

Conclusion

Hendrickson takes history and authorities seriously. In “The Treasury Standard,” he provides a mentation of dollar power successful nan post-Bretton Woods monetary strategy based connected nan needs of emergency warfare financing while minimizing economical disruptions and explains really this equilibrium whitethorn beryllium destabilized by unsustainable US debt. While he focuses connected nan humanities and governmental forces that established nan existent authorities successful nan paper, he besides provides a valuable starting constituent for reasoning astir nan early domiciled and imaginable consequences of bitcoin successful nan world monetary system.

This article is based connected comments presented astatine the Satoshi Papers Symposium astatine nan University of Austin (UATX), April 16, 2025.