Finance is increasingly becoming a weapon of war. U.S. policymakers and allies are too narrowly focused on macroeconomic measures, such as sanctions and the promotion of the dollar as a reserve currency, as the modern front develops. Today, the real battle is being waged on smartphones and the global currency market.
China is pursuing a multi-decade plan to replace the dollar as America's biggest asset. As the world's reserve currency, the dollar is extremely important to the economic and geopolitical power of the United States. Without it, our influence will weaken and debt will become a bigger problem. This is exactly what the Chinese Communist Party and the Kremlin want.
China and Russia are increasing their gold stockpiles while reducing their holdings of billions of dollars in U.S. Treasuries. Our sanctions, aimed at separating countries from the “Western” economic system, are no longer a sufficient deterrent for those who can control financial activity within their borders and project their power outward.
Authoritarian adversaries, including China, Iran, and Russia, are actively building parallel transnational economic systems that draw into their orbit not only their neighbors but also the allies with whom they have significant trade. I am doing it.
For example, more than half of Japanese businesses accept Alipay, and more than a third accept WeChat Pay. This distribution has given the two Chinese companies unprecedented visibility into the individual market transactions of Japanese consumers and businesses. If tensions escalate, such as with a potential conflict over Taiwan, China could disrupt Japan's economy.
How can the US respond?
China sees financial technology and cryptocurrencies as tools to extend financial power and surveillance around the world. The United States should respond in two ways. One is to export our financial technology and systems around the world, and the other is to embrace Bitcoin as a strategic reserve asset rather than stifle innovation.
Lawmakers and politicians on both sides of the aisle, especially President-elect Donald Trump, have recognized the power of holding Bitcoin on national balance sheets as a hedge against inflation. This direction would also strengthen America's resilience to the economic challenges posed by China's financial strategy.
Like many central banks, the Federal Reserve maintains a diverse portfolio of reserve assets. As of 2024, this includes approximately $35 billion in foreign currency and $11 billion in gold inventories. These holdings are a testament to America's economic strength and provide liquidity in times of financial stress. However, in a rapidly digitizing world, the absence of native digital assets in this portfolio is becoming increasingly evident.
Bitcoin, with its global popularity and growing adoption, is an ideal candidate to fill this gap. Bitcoin, also known as “digital gold,” is a rare commodity. The United States, the nation's largest Bitcoin holder, has seized 210,000 coins from illegal actors. This could give the United States a first-mover advantage and secure its 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 national reserve asset. They have seen a 100% increase in value and have no intention of selling.
war on many fronts
The United States must recognize that we are already engaged in a multi-sided war with China. One of these fronts is financial services, and cryptocurrencies are a weapon in our arsenal. Losing this battle would mean that global financial services and individual financial activities would be dominated by hostile states focused on control, surveillance, and domination, and continued attacks on currencies.
President Trump understands this, telling Bloomberg in July, “If we don't do it, China will pick it up.”
Projecting U.S. financial power also requires the government to empower, enable, and encourage the private economic sector to interact with conflict economies in the Indo-Pacific and other regions. It is essential to expand the use of payment systems, banks and the dollar, even if controversially.
At the moment, the enemy is winning because we are not even playing. They export their systems, institutions, and monitoring tools around the world. Meanwhile, we are doing little as TikTok, a serious threat to national security, captivates an entire generation of Americans. We must do the same with financial technology, because there is no greater disruption for our adversaries.
The United States should weaponize financial technology and cryptocurrencies more explicitly. For example, we will allow citizens of hostile governments like Iran to use their smartphones to access USD-based stablecoins and payment services to begin separating economic activity from government control. We should support decentralized financial technology. Essentially, power is about controlling resources and the economy, as well as police and national security.
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 accepting Bitcoin as a reserve asset. Now is the time to take bold action, and the benefits for global financial stability and innovation can be huge.
