Author: Christian Catalini, Co-founder of Lightspark
Compiled by: Luffy, Foresight News
The United States is benefiting from what economists call the "exorbitant privilege". As the issuer of the world's reserve currency, the US can borrow in its own currency and finance new spending. However, this does not mean that the US can print money at will, as government debt still needs to attract buyers in the open market. Fortunately, US government debt is widely seen as the world's safest asset, with strong demand, especially in times of crisis, as a common haven for investors.
Who benefits from this "exorbitant privilege"? First, US policymakers, who gain additional flexibility in fiscal and monetary policy decisions. Second, banks, which are at the core of global capital flows, earning fees and gaining influence. But the real winners are US companies and multinational corporations, which can conduct business in their home currency and issue debt and borrow more cheaply than foreign competitors. Consumers also benefit from stronger purchasing power, lower borrowing costs, and more affordable loans.
What are the results? The US can borrow at a lower cost, maintain higher deficits in the long run, and withstand economic shocks that could plunge other countries into crisis. However, this "exorbitant privilege" is not a given, but must be earned. It depends on the economic, financial, and geopolitical strength of the US. Ultimately, the entire system relies on a key factor: trust. Trust in US institutions, governance, and military power. Most importantly, the belief that the US dollar remains the safest place to park global savings.
All of this has direct implications for the Trump administration's proposed Bitcoin reserve. The supporters of a Bitcoin reserve are not wrong in their view of Bitcoin's long-term strategic role, but the timing is not right. The real opportunity now is not simply to hoard Bitcoin, but to actively guide Bitcoin into the global financial system, to strengthen rather than undermine America's economic leadership. This means leveraging both US dollar stablecoins and Bitcoin to ensure the US leads the next era of financial infrastructure.
Before discussing this further, let's first analyze the role of reserve currencies and their issuing countries.
The Rise and Fall of Reserve Currencies
History shows that reserve currencies belong to the dominant countries of the world economy and geopolitics. In their heyday, these dominant countries set the rules for trade, finance, and military power, bestowing their currency with global credibility and trust. From the Portuguese real in the 15th century to the US dollar in the 20th century, the issuers of reserve currencies have shaped markets and institutions, attracting others to emulate them.
But no currency can maintain dominance forever. Overexpansion, whether due to war, costly expansionist actions, or unsustainable social commitments, ultimately erodes credibility. The Spanish eight-real coin, once strong due to large silver reserves from Latin America, gradually declined as Spain's debt grew and its economic management deteriorated. The Dutch guilder waned as endless wars depleted Dutch resources. The French franc, dominant in the 18th and early 19th centuries, weakened under the pressures of revolution, the Napoleonic Wars, and poor financial management. And the British pound, once the global financial bedrock, gradually crumbled under the weight of post-war debt and the rise of American industry.
The lesson of history is clear: economic and military power may create a reserve currency, but financial stability and institutional leadership are what secure its position. Without these foundations, the privilege disappears.
Is the Dollar's Dominance Coming to an End?
The answer to this question depends on the starting point. In the years around World War II, the US dollar consolidated its position as the world's reserve currency through the Bretton Woods agreement, though the seeds were sown earlier when the US became the world's major creditor nation after World War I. Whichever starting point is chosen, the US dollar has dominated the global economy for over 80 years. By historical standards, this is a long time, but not unprecedented - the British pound also ruled for about a century before its decline.
Today, some believe that American global hegemony is eroding. China's rapid progress in AI, robotics, electric vehicles, and advanced manufacturing signals a shift in power. China also has significant control over key minerals crucial for shaping the future. Other warning signs are emerging. a16z co-founder Marc Andreessen has called the release of DeepSeek's R1 an "AI Sputnik moment" for the US, a wake-up call that America's leadership in emerging technologies is no longer secure. Meanwhile, China's growing military might in air, sea, and cyberspace, as well as its increasing economic influence, raise an urgent question: Is the dollar's dominance under threat?
Debt as a percentage of GDP for major economies. Data source: International Monetary Fund
The short answer is: not yet. While debt is rising and there is misinformation about the imminent collapse of the dollar, the US is not on the brink of a fiscal crisis. Indeed, the debt-to-GDP ratio, while high, especially after the pandemic spending surge, is still comparable to other major economies. More importantly, the vast majority of global trade is still conducted in US dollars. The renminbi is narrowing the gap with the euro in some international settlements, but is far from replacing the dollar.
The real issue is not whether the dollar will collapse - it won't. The real concern is whether the US can maintain its lead in innovation and economic strength. If trust in US institutions is eroded, or if the US loses its competitive edge in critical industries, cracks in the dollar's dominance may start to appear. Those betting on the dollar's decline include not just market speculators, but also America's geopolitical rivals.
This does not mean that fiscal discipline is unimportant. It is extremely important. Reducing spending and improving government efficiency, whether through a Department of Government Efficiency (DOGE) or other means, would be a welcome change. Streamlining outdated bureaucracies, removing barriers to entrepreneurship, and promoting innovation and competition can not only cut wasteful public spending, but also strengthen the US economy and reinforce the dollar's position.
Combined with the US's continued breakthroughs in AI, cryptocurrencies, robotics, biotechnology, and defense technology, this approach can emulate the US's regulatory and commercialization model for the internet, driving a new wave of economic growth and ensuring the dollar remains the world's unquestioned reserve currency.
Can a Bitcoin Reserve Bolster America's Financial Leadership?
This brings us to the idea of a Bitcoin strategic reserve. Unlike traditional reserve assets, Bitcoin lacks the historical backing of state institutions and geopolitical power, but this is precisely the key. It represents a new paradigm: no state support, no single point of failure, fully globalized and politically neutral. Bitcoin provides an alternative that operates outside the constraints of the traditional financial system.
While many view Bitcoin as a breakthrough in computer science, its true innovation runs deeper: it redefines the way economic activity is coordinated and value is transferred across borders. As a decentralized, trustless system (with an anonymous creator who exerts no control), the Bitcoin blockchain serves as a neutral, universal ledger - an independent framework for recording global credit and debt, without relying on central banks, financial institutions, political alliances, or other intermediaries. This makes it not only a technological advancement, but a structural change in the way financial coordination operates globally.
Here is the English translation:This neutrality gives Bitcoin unique resilience against debt crises and political conflicts that have historically led to the collapse of fiat currency systems. Unlike the traditional monetary system that is deeply dependent on state policies and geopolitical changes, Bitcoin's operation is not controlled by any single government. This also gives it the potential to become a common economic language between countries that were originally resistant to financial integration or completely rejected a unified ledger system. For example, the United States and China are unlikely to trust each other's payment channels, especially as financial sanctions increasingly become a powerful tool of economic warfare.
So how will these fragmented systems interact? Bitcoin may become a bridge: a globally universal, minimally trusted settlement layer connecting originally competing economic domains. When this vision becomes a reality, the United States holding strategic Bitcoin reserves would undoubtedly be meaningful.
But we have not reached that point yet. To move Bitcoin beyond an investment asset, critical infrastructure must be developed to ensure scalability, establish a modern compliance framework, and provide seamless integration with fiat currencies to enable mainstream adoption.
The supporters of Bitcoin reserves are not wrong in their view of its potential long-term strategic role, but the timing is not right.
Why Do Nations Maintain Strategic Reserves?
The reasons why countries stockpile strategic commodities are simple: in a crisis, the convenience of accessing resources is more important than price. Oil is a typical example - while futures markets can be used for price hedging, when supply chains are disrupted by war, geopolitics or other disruptions, financial instruments cannot substitute for physical oil on hand.
The same logic applies to other essentials like natural gas, food, medical supplies, and increasingly critical raw materials. As the world transitions to battery-powered technologies, governments are already stockpiling lithium, nickel, cobalt and manganese to prepare for future shortages.
Currencies are no different. Heavily indebted countries hold dollar reserves to facilitate debt rollovers and guard against domestic currency crises. But the key difference is: currently no country is burdened with large Bitcoin debts, at least not yet.
Bitcoin supporters argue that Bitcoin's long-term price trend makes it an obvious reserve asset. If the US buys in now, the value of this investment could multiply as Bitcoin adoption grows. However, this approach is more aligned with the strategy of sovereign wealth funds, focused on capital returns rather than the reserve strategy critical to national security. It is more suitable for resource-rich but economically imbalanced countries seeking asymmetric financial gains, or for countries with weak central banks hoping Bitcoin can stabilize their balance sheets.
What about the US? It currently does not need Bitcoin to maintain economic operations, and while President Trump recently announced the creation of a sovereign wealth fund, cryptocurrency investments may be left primarily to the private market for effective allocation. The strongest rationale for establishing Bitcoin reserves is not economic necessity, but strategic positioning. Holding reserves could signal that the US is decisively betting on leading the cryptocurrency space, establishing clear regulatory frameworks, and positioning itself as the global center of decentralized finance (DeFi), just as it has dominated traditional finance for decades. However, at this stage, the costs may outweigh the benefits.
Why Bitcoin Reserves May Backfire
Beyond the logistical challenges of accumulating and safeguarding Bitcoin reserves, the bigger issue is perception, and the costs could be high. In the worst case, this could signal a lack of confidence in the US government's ability to maintain its debt, a strategic misstep that could give geopolitical rivals like Russia and China - who have long sought to undermine the dollar's status - an advantage.
Russia not only promotes de-dollarization abroad, but its state media has for years spread narratives questioning the dollar's stability and predicting its imminent decline. Meanwhile, China has taken a more direct approach, expanding the influence of the renminbi and digital payment infrastructure, including through the primarily domestic-focused digital yuan, challenging the US-dominated financial system, especially in cross-border trade and payments. In global finance, perception is crucial. Expectations not only reflect reality, but also shape it.
If the US government begins large-scale Bitcoin accumulation, the market may interpret this as a hedge against the dollar itself. This perception alone could prompt investors to sell dollars or reallocate capital, undermining the dollar's status. In global finance, belief drives behavior. If enough investors start to doubt the dollar's stability, their collective action will turn that doubt into reality.
US monetary policy relies on the Federal Reserve's ability to manage interest rates and inflation. Holding Bitcoin reserves could send conflicting signals: if the government is confident in its own economic tools, why hold an asset outside the Fed's control?
Will Bitcoin reserves alone trigger a dollar crisis? Highly unlikely. But they may also fail to strengthen the existing system. In geopolitics and finance, unnecessary missteps often come at the highest cost.
Strategic Leadership, Not Speculation
The best way for the US to reduce its debt-to-GDP ratio is not through speculation, but through fiscal discipline and economic growth. History shows that reserve currencies do not last forever, and those that have declined are often due to mismanagement and overexpansion. To avoid the fate of the Spanish eight-real, Dutch guilder, French livre, and British pound, the US must focus on sustainable economic strength, not risky financial bets.
If Bitcoin becomes a global reserve currency, the US will be the biggest loser. The transition from dollar dominance to a Bitcoin-based system will not be smooth. Some believe Bitcoin's appreciation can help the US "pay off" its debt, but the reality will be much harsher. Such a shift would make it more difficult for the US to finance its debt and maintain its economic influence.
While many believe Bitcoin will never become a true medium of exchange and unit of account, history suggests otherwise. Gold and silver have value not only because they are scarce, but also because they are divisible, durable, and portable, making them effective currencies, just like Bitcoin today. Similarly, China's early paper currency initially emerged not as a government-mandated medium of exchange, but evolved from commercial bills and deposit certificates representing trusted stores of value, which later gained wider acceptance as a medium of exchange.
Fiat currencies are often seen as an exception to this model, where they immediately function as a medium of exchange upon being declared legal tender, and then become a store of value. But this oversimplifies reality. The power bestowed on fiat currencies is not just by legal decree, but also by the government's ability to enforce taxation and use that power to fulfill debt obligations. Currencies backed by countries with strong tax bases have inherent demand, as businesses and individuals need them to settle debts. This taxing power allows fiat currencies to maintain value even without direct commodity backing.
But even fiat currency systems are not built from scratch. Historically, their credibility stems from commodities that people already trust, most notably gold. Paper currencies were accepted because they were once redeemable for gold or silver. The transition to pure fiat currencies was only achieved after this trust was reinforced over decades.
Bitcoin is following a similar development trajectory. Today, it is primarily seen as a means of value storage, with high volatility, but is gradually being seen as "digital gold". However, as the scope of adoption expands and the financial infrastructure matures, Bitcoin's role as a medium of exchange may follow. History shows that once an asset is widely recognized as a reliable means of value storage, the transition to a functional currency is a natural process.
For the United States, this poses a significant challenge. While there are some policy levers, Bitcoin is largely beyond the traditional control of countries over their currencies. If it gains recognition as a global medium of exchange, the United States will face a stark reality: the reserve currency status cannot be easily relinquished.
This does not mean that the United States should resist or ignore Bitcoin; on the contrary, it should actively engage and shape Bitcoin's role within the financial system. But simply buying and holding Bitcoin for price appreciation is not the answer. The real opportunity is larger, but also more challenging: to integrate Bitcoin into the global financial system in a way that strengthens the United States' economic leadership position.
The United States' Bitcoin Platform Strategy
Bitcoin is the most mature cryptocurrency, unparalleled in terms of security and decentralization. This makes it the strongest candidate for mainstream adoption, first as a store of value and ultimately as a medium of exchange.
For many, the appeal of Bitcoin lies in its decentralized nature and scarcity, factors that drive its price appreciation as adoption accelerates. But this is a narrow view. While Bitcoin will continue to appreciate in value as it gains mainstream adoption, the real long-term opportunity for the United States lies not only in holding it, but in actively guiding its integration into the global financial system and establishing itself as the international center of Bitcoin finance.
For every country other than the United States, simply buying and holding Bitcoin is a perfectly viable strategy, both accelerating Bitcoin's adoption and generating financial returns. But the stakes for the United States are much more complex, and it must take more action. It needs a different approach, one that not only maintains its role as the issuer of the world's reserve currency, but also drives large-scale financial innovation with the US dollar as the "platform".
The key precedent here is the internet, which changed the economic landscape by shifting information exchange from proprietary networks to open networks. Today, the US government faces a choice similar to that of pre-internet companies, as the financial track is shifting towards more open and decentralized infrastructure. Just as those companies that embraced the open architecture of the internet thrived, while those that resisted were ultimately eliminated, the US's attitude towards this transformation will determine whether it maintains global financial influence or cedes the ground to other countries.
The first major pillar of a more ambitious, forward-looking strategy is to view Bitcoin as a network, not just an asset. As open, permissionless networks drive the construction of new financial infrastructure, incumbent firms must be willing to relinquish some control. However, in doing so, the United States can unlock major new opportunities. History shows that countries that adapt to disruptive technologies strengthen their position, while those that resist ultimately fail.
The second key pillar, complementary to Bitcoin, is to accelerate the adoption of US dollar stablecoins. Through appropriate regulation, stablecoins can strengthen the public-private partnership that has underpinned the United States' financial dominance for over a century. Stablecoins will not weaken the US dollar's hegemonic position, but rather can consolidate it, expand the dollar's reach, improve its utility, and ensure its relevance in the digital economy. Moreover, compared to the slow-moving, bureaucratic central bank digital currencies or the International Bank of Settlements' "financial internet" with its vague definition of a unified ledger, stablecoins offer a more agile and flexible solution.
But not every country is willing to adopt US dollar stablecoins or operate entirely within the US regulatory framework. This is where Bitcoin can play a critical strategic role, serving as a bridge between the core US dollar platform and the economies of non-geopolitical allies. In this case, Bitcoin can act as a neutral network and asset, facilitating capital flows while reinforcing the United States' central role in global finance, preventing the US from ceding ground to competing currencies like the renminbi.
If the United States successfully implements this strategy, it will become the center of Bitcoin financial activity, giving it greater influence to guide these capital flows according to US interests and principles.
This is a nuanced but viable strategy, and if implemented effectively, could extend the influence of the US dollar for decades. Rather than simply hoarding Bitcoin reserves, which could imply doubts about the stability of the US dollar, strategically integrating Bitcoin into the financial system and driving the development of the US dollar and US dollar stablecoins on the network would make the US government an active manager, not a passive observer.
What are the benefits? A more open financial infrastructure, with the United States still controlling the "killer app" - the US dollar. This approach is similar to that of companies like Meta and DeepSeek, which set industry standards through open-source AI models while profiting in other areas. For the United States, this means expanding the US dollar platform and making it interoperable with Bitcoin, ensuring the dollar's relevance in a future where cryptocurrencies play a core role.
Of course, like any initiative to address disruptive change, this strategy carries risks. But the cost of resisting innovation is obsolescence. If any administration can successfully implement this strategy, it is this one, with deep expertise in platform competition and a clear understanding that maintaining a leading position is not about controlling the entire ecosystem, but about how to extract value within it.
