By Christian Catalini, Co-founder of Lightspark
Compiled by: Luffy, Foresight News
The United States is benefiting from what economists call an "exorbitant privilege." As the issuer of the world's reserve currency, the United States is able to borrow in its own currency and support new spending. However, this does not mean that the United States can print money at will, and Treasury bonds must still attract buyers in the open market. Fortunately, U.S. Treasury bonds are widely regarded as the safest asset in the world, and they are in strong demand, especially in times of crisis, and are a popular safe-haven option for investors.
Who benefits from this “exorbitant privilege”? First, U.S. policymakers, who gain extra flexibility in fiscal and monetary policy decisions. Second, banks, which are at the heart of global financial flows, earn fees and gain influence. But the real winners are U.S. companies and multinational corporations, which can do business in their own currency and issue bonds and borrow more cheaply than foreign competitors. Then there are consumers, who enjoy greater purchasing power, lower borrowing costs, and more affordable loans.
The result? The United States is able to borrow more cheaply, run higher deficits for longer periods of time, and withstand economic shocks that would cripple other countries. Yet this “exorbitant privilege” is not a given; it must be earned. It depends on America’s economic, financial, and geopolitical power. Ultimately, the entire system rests on one key ingredient: trust. Trust in American institutions, governance, and military might. Most importantly, the belief that, ultimately, the dollar remains the safest place to park the world’s savings.
All of this has a direct impact on the Trump administration’s proposed Bitcoin reserve. Bitcoin reserve supporters are not wrong about Bitcoin’s long-term strategic role, but the timing is not right. The real opportunity now is not to simply hoard Bitcoin, but to actively guide Bitcoin into the global financial system to strengthen rather than weaken America’s economic leadership. This means using both dollar stablecoins and Bitcoin to ensure that the United States leads the next era of financial infrastructure.
Before we get into that, let’s unpack the role of reserve currencies and the countries that issue them.
The rise and fall of reserve currencies
History shows that reserve currencies belong to the dominant countries in the world economy and geopolitics. In their heyday, dominant countries set the rules of trade, finance and military power, giving their currencies global credibility and trust. From the Portuguese real in the 15th century to the US dollar in the 20th century, the issuer of a reserve currency shapes markets and institutions, leading other countries to follow suit.
But no currency dominates forever. Overextension, whether through war, costly expansionary actions, or unsustainable social commitments, eventually erodes credibility. The Spanish eight-real coin, once bolstered by its vast reserves of silver from Latin America, saw its dominance erode as Spain’s debts mounted and its economy mismanaged. The Dutch guilder languished as endless wars drained Dutch resources. The French franc, dominant in the 18th and early 19th centuries, weakened under the weight of revolution, the Napoleonic wars, and financial mismanagement. And the pound, once the bedrock of global finance, crumbled under the weight of postwar debt and the rise of American industry.
The lesson of history is clear: economic and military might may make a reserve currency, but financial stability and institutional leadership ensure its status. Without those foundations, the privilege disappears.
Is the dollar's dominance coming to an end?
The answer to this question depends on when you start. The dollar solidified its position as the world’s reserve currency around World War II, with the Bretton Woods Agreement, and even earlier, when the United States became the leading global creditor after World War I. At any given point in time, the dollar has dominated the world economy for more than 80 years. That’s a long time by historical standards, but it’s not unprecedented: the British pound also dominated for about a century before its decline.
Today, some argue that American world hegemony is unravelling. China’s rapid advances in artificial intelligence, robotics, electric vehicles, and advanced manufacturing signal a shift in power. In addition, China has significant control over key minerals that will be critical to shaping the future. Other warning signs are also emerging. a16z co-founder Marc Anderson called DeepSeek’s R1 launch an “AI Sputnik moment” for the United States, a wake-up call that the United States’ leadership in emerging technologies is no longer secure. At the same time, China’s expanding military power in the air, sea, and cyberspace, as well as its growing economic influence, raise a pressing question: Is the dollar’s dominance under threat?
Debt as a percentage of GDP of some major economies. Data source: International Monetary Fund
The short answer is: not yet. Despite rising debt and a disinformation campaign about an imminent dollar collapse, the U.S. is not on the brink of a fiscal crisis. True, the debt-to-GDP ratio is high, especially after a spending surge during the pandemic, but it’s still on par with other major economies. More importantly, the vast majority of global trade is still conducted in dollars. The renminbi is closing the gap with the euro in some international settlements, but it’s nowhere near enough to displace the dollar.
The real question is not whether the dollar will collapse; it won’t. The real concern is whether the United States can maintain its lead in innovation and economic strength. If trust in U.S. institutions erodes or the United States loses its competitive edge in key industries, cracks in the dollar’s dominance could begin to show. Those betting on the dollar’s decline are 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 making government more efficient, either through a Department of Government Efficiency (DOGE) or otherwise, would be a welcome shift. Streamlining outdated bureaucracies, removing barriers to entrepreneurship, and promoting innovation and competition would not only cut wasteful public spending, but also strengthen the U.S. economy and the dollar.
Coupled with the United States’ continued breakthroughs in artificial intelligence, cryptocurrency, robotics, biotechnology, and defense technology, this approach could emulate the United States’ model for regulating and commercializing the Internet, drive a new round of economic growth, and ensure that the dollar remains the world’s undisputed reserve currency.
Can Bitcoin Reserves Strengthen America's Financial Leadership?
This brings us to the idea of a strategic reserve of Bitcoin. Unlike traditional reserve assets, Bitcoin lacks the historical backing of national institutions and geopolitical forces, but this is precisely the point. It represents a new paradigm: no state backing, no single point of failure, fully globalized and politically neutral. Bitcoin offers an alternative that operates outside the constraints of the traditional financial system.
While many see Bitcoin as a computer science breakthrough, its true innovation is much more profound: it redefines how economic activity is coordinated and how value is transferred across borders. As a decentralized, trustless system (over which its anonymous creators exert no control), the Bitcoin blockchain acts as a neutral, universal ledger, an independent framework for recording global credits and debts without relying on central banks, financial institutions, political unions, or other intermediaries. This makes it not only a technological advancement, but also a structural change in how financial coordination works on a global scale.
This neutrality makes Bitcoin uniquely resilient to the debt crises and political entanglements that have historically led to the collapse of fiat monetary systems. Unlike traditional monetary systems that are deeply dependent on national policies and geopolitical changes, Bitcoin operates without the control of any single government. This also gives it the potential to become a common economic language between countries that otherwise resist financial integration or reject a unified ledger system altogether. For example, the United States and China are unlikely to trust each other's payment channels, especially as financial sanctions become an increasingly powerful tool of economic warfare.
So how will these fragmented systems interact? Bitcoin could be the bridge: a global, trust-minimized settlement layer that connects otherwise competing economic sectors. When that vision becomes a reality, it would undoubtedly make sense for the United States to hold a strategic Bitcoin reserve.
But we are not there yet. In order for Bitcoin to move beyond an investment asset, critical infrastructure must be developed to ensure scalability, establish a modern compliance framework, and provide a seamless connection to fiat currencies for mainstream adoption.
Bitcoin reserve proponents are not wrong about its potential long-term strategic role, they are just not right. Let’s explain why.
Why should countries maintain strategic reserves?
The reason countries stockpile strategic supplies is simple: in a crisis, the ease of access to supplies is more important than price. Oil is a classic example. Although futures markets can hedge prices, when supply chains are disrupted by war, geopolitics or other disruptions, no amount of financial means can replace physical oil on hand.
The same logic applies to other essentials such as natural gas, food, medical supplies and, increasingly, critical raw materials. Governments are already stockpiling lithium, nickel, cobalt and manganese to prepare for future shortages as the world transitions to battery-powered technology.
The same is true for currencies. Countries with large foreign debts hold reserves in dollars to roll over their debts and protect against crises in their own currencies. But here’s the key difference: no country has large debts in Bitcoin, at least not yet.
Bitcoin supporters argue that Bitcoin's long-term price trend makes it an obvious reserve asset. If the U.S. buys in now, the value of that investment could grow exponentially as Bitcoin adoption continues to increase. However, this approach is more in line with the strategy of sovereign wealth funds, which focus on capital returns, rather than a reserve strategy that is critical to national security. It is more suitable for resource-rich but economically unbalanced countries that want to reap asymmetric financial benefits, or for countries with weak central banks that hope Bitcoin can stabilize their balance sheets.
So what about the United States? It doesn’t yet need Bitcoin to keep its economy going, and despite President Trump’s recent announcement of a sovereign wealth fund, cryptocurrency investments are likely to be left primarily to private markets for efficient allocation. The strongest case for building a Bitcoin reserve is not one of economic necessity, but one of strategic positioning. Holding a reserve would signal that the United States is making a decisive bet to lead the cryptocurrency space, establish a clear regulatory framework, and position itself as a global hub for decentralized finance (DeFi), just as it has dominated traditional finance for decades. However, at this stage, the costs of such a move may outweigh the benefits.
Why Bitcoin Reserves Could Backfire
Beyond the logistical challenges of accumulating and securing a reserve of bitcoin, the bigger problem is one of perception, and the costs could be high. In the worst-case scenario, it could signal a lack of confidence in the U.S. government’s ability to sustain its debt, a strategic misstep that would give an edge to geopolitical rivals like Russia and China, which have long sought to undermine the dollar.
Russia is not only pushing for de-dollarization abroad, its official media has for years spread rhetoric questioning the stability of the dollar and predicting its imminent decline. Meanwhile, China has taken a more direct approach to expanding the influence of the renminbi and digital payment infrastructure, including through a digital renminbi that is primarily domestically oriented, challenging the U.S.-dominated financial system, especially in cross-border trade and payments. In global finance, perceptions matter. Expectations not only reflect reality, they shape it.
If the U.S. government begins to accumulate Bitcoin on a large scale, the market may interpret it as a hedge against the dollar itself. This perception alone may prompt investors to sell dollars or reallocate capital, thereby weakening the dollar's position. In the world of global finance, beliefs drive behavior. If enough investors begin to doubt the stability of the dollar, their collective actions will turn this doubt into reality.
U.S. monetary policy relies on the Fed’s ability to manage interest rates and inflation. Holding Bitcoin reserves could send conflicting signals: If the government is confident in its economic tools, why would it reserve an asset that is not controlled by the Fed?
Will Bitcoin reserves alone cause a dollar crisis? Very unlikely. But it also probably won’t strengthen the existing system. In geopolitics and finance, unnecessary missteps are often the most costly.
Strategic leadership, not speculation
The best way for the United States 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 do fail are often due to economic mismanagement and overextension. To avoid repeating the mistakes of the Spanish eight-real coin, the Dutch guilder, the French livre, and the British pound, the United States must focus on sustainable economic strength rather than risky financial bets.
If Bitcoin becomes the global reserve currency, the United States will be the country that loses the most. There will not be a smooth transition from a dollar-dominated to a Bitcoin-based system. Some people think that the appreciation of Bitcoin can help the United States "pay off" its debts, but the reality will be much more cruel. Such a transition will make it more difficult for the United States to finance its debts 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 as Bitcoin is today. Similarly, early Chinese paper money did not initially emerge as a government-enforced medium of exchange. It evolved from commercial promissory notes and certificates of deposit that represented a trusted store of value before gaining wider acceptance as a medium of exchange.
Fiat money is often seen as an exception to this pattern, where it is declared legal tender by a government and immediately functions as a medium of exchange and subsequently a store of value. But this oversimplifies reality. It is not just the legal provision that gives fiat money its power, but also the government’s ability to enforce taxes and, through that power, to meet debt obligations. Money backed by a country with a strong tax base has inherent demand because businesses and individuals need it to settle their debts. This power to tax allows fiat money to maintain value even without direct commodity backing.
But even fiat money systems aren’t created in a vacuum. Historically, their credibility has been based on commodities that people already trust, most notably gold. Paper money was accepted precisely because it was once redeemable for gold or silver. The shift to pure fiat money was only possible after decades of reinforcing that trust.
Bitcoin is following a similar trajectory. Today, it is primarily viewed as a store of value, volatile but increasingly viewed as “digital gold.” However, as adoption expands and 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 store of value, the transition to functional currency is a natural progression.
For the United States, this presents a significant challenge. While some policy levers exist, Bitcoin is largely immune to the traditional controls that countries have over their currencies. If it gains acceptance as a global medium of exchange, the United States will face a stark reality: reserve currency status cannot be easily relinquished.
This does not mean that the United States should resist or ignore Bitcoin. Instead, it should actively participate in and shape Bitcoin's role in the financial system. But buying and holding Bitcoin simply for price appreciation is not the answer either. The real opportunity is greater, but also more challenging: promoting Bitcoin's integration into the global financial system in a way that strengthens America's economic leadership.
Bitcoin platform strategy in the United States
Bitcoin is the most established cryptocurrency and is unrivaled in terms of security and decentralization. This makes it the strongest candidate for mainstream adoption, first as a store of value and eventually as a medium of exchange.
For many, the appeal of Bitcoin lies in its decentralized nature and scarcity, factors that will drive its price up as adoption accelerates. But this is a narrow view. While Bitcoin will continue to increase in value as it becomes more popular, the real long-term opportunity for the United States lies not just 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 except the United States, simply buying and holding Bitcoin is a perfectly viable strategy to accelerate Bitcoin adoption and reap financial benefits. But the stakes facing the United States are much more complex, and it must do more. It needs a different approach, not only to maintain its role as the issuer of the world's reserve currency, but also to promote large-scale financial innovation that uses the dollar as a "platform."
The key precedent here is the Internet, which transformed the economic landscape by moving information exchange from proprietary to open networks. Today, the U.S. government faces similar choices as pre-Internet businesses as the financial rails shift toward a more open and decentralized infrastructure. Just as companies that embraced the Internet’s open architecture flourished and those that resisted were eventually eliminated, the United States’ attitude toward this shift will determine whether it maintains global financial influence or cedes ground to other countries.
The first pillar of a more ambitious, future-oriented strategy is to treat Bitcoin as a network, not just an asset. As open, permissionless networks drive new financial infrastructure, incumbents must be willing to give up some control. In doing so, however, the United States can open up significant new opportunities. History shows that countries that adapt to disruptive technologies strengthen their position, while those that resist ultimately lose.
The second key pillar, complementary to Bitcoin, is to accelerate the adoption of USD stablecoins. With proper regulation, stablecoins can strengthen the public-private partnership that has underpinned the United States’ financial dominance for more than a century. Rather than undermining the dollar’s dominance, stablecoins can consolidate it, expanding the dollar’s influence, increasing its utility, and ensuring its relevance in the digital economy. Moreover, stablecoins offer a more flexible and agile solution than slow-moving, bureaucratic central bank digital currencies or vaguely defined unified ledgers such as the Bank for International Settlements’ “Internet of Finance.”
But not every country is willing to adopt a dollar stablecoin or operate entirely within the U.S. regulatory framework. This is where Bitcoin plays a key strategic role, acting as a bridge between the core dollar platform and non-geopolitically allied economies. In this case, Bitcoin can serve as a neutral network and asset that facilitates the flow of funds while reinforcing the U.S.’ central role in global finance, thereby preventing the U.S. from ceding ground to competing currencies such as the RMB.
If the United States successfully implements this strategy, it will become the epicenter of Bitcoin financial activity, giving it greater influence to direct these capital flows in accordance with U.S. interests and principles.
This is a subtle but viable strategy that, if implemented effectively, could extend the dollar’s influence for decades. Rather than simply hoarding Bitcoin reserves, which could imply doubts about the stability of the dollar, strategically integrating Bitcoin into the financial system and promoting the development of the dollar and dollar stablecoins on the network would make the U.S. government an active manager rather than a passive bystander.
What’s the benefit? A more open financial infrastructure, while the U.S. still controls the “killer app” — the dollar. This approach is similar to what companies like Meta and DeepSeek have done, which set industry standards by open-sourcing AI models while making money in other ways. For the U.S., this means expanding the dollar platform and making it interoperable with Bitcoin, ensuring that the dollar remains relevant in a future where cryptocurrencies play a central role.
Of course, like any approach to disruptive change, this strategy carries risks. But the price of resisting innovation is being left behind. If any administration can successfully pursue this strategy, it is this one, which has deep expertise in platform competition and a clear understanding that staying ahead is not about controlling an entire ecosystem, but about how to capture value within it.
