Donald Trump's bitcoin plans signal the end of the US dollar era

Cryptocurrencies promise to be central to Donald Trump’s economic policies in his second term as US president. Arguably his most controversial proposal is the creation of a strategic bitcoin reserve (SBR).

Donald Trump’s economic policies for his second term as US president are set to centre on cryptocurrencies, with the creation of a strategic bitcoin reserve (SBR) being his most controversial proposal.

The main political questions surrounding an SBR revolve around its structure and whether Trump will be able to deliver on the proposal, given that it would need to pass through the House of Representatives. However, there are already 13 US states that are actively considering or have proposed legislation to establish a SBR.

Economically, one of the main arguments for an SBR is that it can act as a hedge to protect a country’s wealth against inflation and currency devaluation. Whereas typical currencies can be printed at will by central banks, causing their value to decrease, there is a fixed supply of bitcoin (the number in circulation cannot pass 21 million), potentially limiting its devaluation.

So advocates say an SBR could act as a relatively safe store of wealth in much the same way as gold reserves are now. It is for this reason that bitcoin has been labelled “digital gold”.

Another popular argument is that the monetary value of the SBR could appreciate rapidly and hence pay down US national debt. This too is largely a theoretical and untested argument however, and the precise mechanisms remain unclear.

On the other hand, some analysts are concerned that an SBR could lead to a loss of confidence in the dollar, potentially destabilising the US currency. If bitcoin were widely adopted as a global reserve currency, for example, this might destabilise the dollar’s position as the world’s primary reserve currency.

Of course, any such instability may be heightened by bitcoin’s historic price volatility. This saw, for example, its price soar from around US$3,800 (£3,126) at the start of 2019 to nearly US$68,000 in November 2021. It then lost almost half of its value by late January 2022, falling to about US$35,000. But today it is above US$95,000.

Beyond these concerns, however, the SBR highlights a more fundamental, era-defining shift – one that is already under way and will continue regardless of Trump’s bitcoin plans.

To understand this shift, it is helpful to place the rise of cryptocurrencies in context. The post-second world war order was initially structured around a dollar-dominated system – with the US dollar pegged to gold and a host of other currencies pegged to the dollar. This provided stability and confidence in the dollar’s value.

The fixed-rate system was abandoned in the 1970s, however US dominance was retained through the petrodollar system where oil was priced in dollars. The dollar’s role as the world’s reserve currency and the US’s influence in international institutions like the IMF and World Bank reinforced this dominance.

But three overlapping trends have threatened to dislodge the dominance of the dollar over the past two decades. First, the rise of emerging economies such as Brazil, Russia, India, China, South Africa and others (the BRICS+) is creating a more multipolar global system. This is challenging the US’s position as the sole superpower, and reshaping the geopolitical landscape. While experiencing rapid economic growth, these countries have also increased their global leadership roles.

The second trend has been the decentralisation of the financial system and the rise of “private money”, particularly in response to the global financial crisis of 2007-08. Private money refers to any token used as money that is not backed or controlled by a sovereign or central bank. In this sense cryptocurrencies – which operate independently of traditional central bank and treasury money supply mechanisms – are the archetypal private money.

Besides the shift towards private money lies a third trend. This is where governments give private actors like crypto providers and exchanges significant control (“infrastructural power”) in a bid to achieve public policy goals using the financial tools and services provided by these actors. This is a big change from the old order where governments had more direct authority.

Reports that Trump has made crypto a priority signal the next step in this shift. The balance of power is moving away from states and towards companies that block-hold cryptocurrencies, exchanges upon which cryptocurrencies are traded, and the owners of exchange-traded cryptocurrency funds.

This could be a watershed moment. If the US, another leading economic power (like China), or a series of larger emerging economies (like the rest of the BRICS) become block-holders of bitcoin or other major cryptocurrencies, it could trigger the emergence of a cryptocurrency “arms race” on a global scale. This would see country after country rushing to bolster their reserves.

There are already media reports that other nations, including Japan, Russia and China, are accumulating bitcoin ahead of a possible SBR announcement by the US. And Trump has even indicated that he might repeal a controversial