Finance is increasingly a weapon of war. US authorities and our allies focus too much on macroeconomic tools such as sanctions and promoting the dollar as a reserve currency when the modern front is evolving. Today, the real battles are fought on smartphones and in global currency markets.
China is carrying out a multi-decade plan to displace the United States’ greatest asset: the dollar. The dollar is fundamental to the economic and geopolitical power of the United States as a global reserve currency. Without it, our influence would weaken and our debt would become a bigger problem. This is precisely what the Chinese Communist Party and the Kremlin want.
China and Russia have dumped billions of dollars in U.S. Treasury holdings while increasing their gold reserves. Our sanctions, designed to separate countries from the “Western” economic system, are no longer a sufficient deterrent to those who can control financial activity within their borders and project their power abroad.
Authoritarian adversaries – including China, Iran and Russia – are actively building parallel cross-border economic systems that will draw into their orbits not only neighboring countries but also our allies who trade heavily with them.
For example, more than half of businesses in Japan accept Alipay, while more than a third accept WeChat Pay. This distribution gives two Chinese companies unprecedented visibility into the individual market transactions of Japanese consumers and businesses. It could allow China to disrupt Japan’s economy should tensions rise, such as in a possible conflict over Taiwan.
How the United States can respond
China sees financial technology and cryptocurrencies as tools to extend its financial power and surveillance globally. The United States must respond in two ways: export our technology and financial systems around the world and embrace bitcoin as a strategic reserve asset instead of stifling innovation.
Lawmakers and politicians on both sides of the aisle, particularly President-elect Donald Trump, recognize the power of keeping bitcoin on the country’s balance sheet as a hedge against inflation. This direction would also strengthen America’s resilience in the face of economic challenges posed by China’s financial strategies.
The Federal Reserve, like many central banks, holds a diverse portfolio of reserve assets. As of 2024, this includes approximately $35 billion in foreign currencies and $11 billion in gold stocks. These holdings demonstrate America’s economic strength and provide liquidity during financial stress. However, in our rapidly digitalizing world, the absence of a native digital asset in this portfolio is increasingly noticeable.
With its global reach and growing adoption, bitcoin is the ideal candidate to fill this gap. Often called “digital gold,” bitcoin is a rare commodity. The United States is the largest nation-state in possession of bitcoins, having confiscated 210,000 coins from illegal actors. This gives the United States a first-mover advantage and could secure our economic future.
Critics may argue that bitcoin’s volatility makes it unsuitable as a reserve asset. However, this volatility is likely to decrease as adoption grows and the market matures. In 2021, El Salvador recognized bitcoin as legal tender and began purchasing it as a treasury reserve asset. They have seen a 100% increase in value and have no intention of selling.
A war on multiple fronts
The United States must recognize that we are already in a multi-front war with China. One of these fronts is financial services, and cryptocurrencies are a weapon in our arsenal. Losing this battle means that global financial services and individual financial activity would be dominated by adversary states focused on control, surveillance and domination, and a continued attack on our currency.
Trump understands this, telling Bloomberg in July: “If we don’t do it, China will choose [bitcoin] above.”
Projecting American financial power also requires the government to empower, enable and encourage our private economic sector to engage with contested economies across the Indo-Pacific and beyond. Expanding the use of our payment systems, banks and dollars, even when controversial, is essential.
Right now our opponents are winning because we’re not even playing. They are exporting their surveillance systems, institutions and tools around the world. Meanwhile, we have done little as TikTok, a serious threat to our national security, captivates an entire generation of Americans. We must do the same with financial technology because no disruption would be greater to our enemies.
The United States should more explicitly weaponize financial technology and cryptocurrencies. For example, we should support decentralized financial technology that allows citizens of hostile governments like Iran to use smartphones to access US dollar-based stablecoins and payment services, in order to begin to separate their economic activity from control. of his government. At its core, power is about control, not just of the police or national security, but also of resources and economies.
The world is at a financial crossroads. The question is not whether digital currencies will shape the future, but how we will adapt to this new reality. The United States can shape this future by adopting bitcoin as a reserve asset. Now is the time for bold action, and the benefits for global financial stability and innovation could be profound.
