U.S. Bitcoin Strategic Reserve Vital for Countering China’s Financial Influence
Finance is increasingly utilized in geopolitical conflicts. U.S. policymakers and allies focus on macroeconomic tools like sanctions and the dollar's status as a reserve currency, while modern battles are occurring on smartphones and in global currency markets.
China aims to displace the U.S. dollar, which is vital for U.S. economic and geopolitical power. The Chinese Communist Party and Kremlin seek to weaken U.S. influence and exacerbate debt issues.
China and Russia have divested billions in U.S. Treasury holdings while increasing their gold reserves. Sanctions intended to isolate countries from the "Western" economic system are less effective against those who can manage financial activities domestically and project power internationally.
Authoritarian regimes, including China, Iran, and Russia, are creating alternative cross-border economic systems that may attract neighboring countries and U.S. allies heavily engaged in trade with them.
For instance, over half of businesses in Japan accept Alipay, and more than one-third accept WeChat Pay, giving Chinese firms insight into Japanese market transactions, potentially enabling economic disruption during heightened tensions.
How the U.S. can respond
China leverages financial technology and cryptocurrency to expand its influence globally. The U.S. should export its financial technology and adopt bitcoin as a strategic reserve asset instead of hindering innovation.
Lawmakers, including President-elect Donald Trump, acknowledge the potential of holding bitcoin on the national balance sheet as a hedge against inflation, enhancing resilience against China's financial strategies.
The Federal Reserve holds a diverse portfolio of reserve assets, including approximately $35 billion in foreign currencies and $11 billion in gold as of 2024. However, the absence of a native digital asset is becoming increasingly apparent.
Bitcoin, often referred to as “digital gold,” is a scarce commodity. The U.S. is the largest nation-state holder of bitcoin, having seized 210,000 coins, providing a first-mover advantage that could secure future economic stability.
Critics cite bitcoin's volatility as a drawback for reserve status; however, this volatility may diminish with increased adoption and market maturation. El Salvador recognized bitcoin as legal tender in 2021 and has seen a 100% increase in value since then.
A multi-front war
The U.S. is engaged in a multi-front war with China, including financial services where crypto serves as a strategic tool. Losing this battle risks allowing adversarial states to dominate global financial services, focusing on control and surveillance.
Trump emphasizes the urgency of U.S. engagement with bitcoin, stating, “If we don’t do it, China is going to pick [bitcoin] up.”
To project American financial power, the government must support the private sector's interactions with contested economies throughout the Indo-Pacific and beyond, expanding the use of U.S. payment systems, banks, and dollars.
Currently, adversaries are advancing by exporting their systems while the U.S. remains passive. Financial technology must be leveraged similarly to how TikTok engages Americans, creating significant disruptions for adversaries.
The U.S. should actively promote decentralized financial technology, enabling citizens in hostile nations like Iran to access USD-based stablecoins and payment services, thereby reducing governmental control over their economic activities. Power encompasses not only security but also control over resources and economies.
The world faces a financial crossroads. The emergence of digital currencies is inevitable, and the question lies in how the U.S. adapts to this reality. Embracing bitcoin as a reserve asset could profoundly impact global financial stability and innovation.