Trump administration establishes "digital gold" Bitcoin reserve

US President Donald Trump is fundamentally changing both currency and trade policy. The Trump administration is integrating Bitcoin (BTC) into the US strategic reserves and tying the dollar's fate to the outcome of a "Mar-a-Lago Accord" with Canada, Mexico, and China, among other economic partners.

In a March 6 executive order, Trump established a "digital gold" BTC reserve, to be capitalised with any BTC seized by federal law enforcement and, if needed, through US purchases of the cryptocurrency on the open market.

With the supply of BTC capped at 21 million coins, the administration wants the United States to secure a first-mover advantage as a major holder of an emerging store of value.

Around the world, governments are increasingly considering BTC as a reserve asset. In Brazil, Congressman Eros Biondini has advanced a proposal to require the central bank to accumulate BTC until it accounts for 5% of the country's reserves.

But one of the world's largest BTC holders is Gelephu Mindfulness City in Bhutan, which holds the cryptocurrency as a strategic reserve.

El Salvador president, Nayib Bukele continues to buy BTC as a strategic reserve, and legislators in Hong Kong have floated a proposal to add BTC to the city-state's official reserves.

China is also rumoured to be building a BTC reserve in stealth. And a recent Swiss popular initiative aims to require the Swiss National Bank (SNB) to include BTC in its holdings, though SNB President Martin Schlegel rejects the idea, citing concerns about the cryptocurrency's volatility, liquidity, and security.

However, the US government's decision to join the reserve-diversification party raises serious doubts about the future of its own currency's hegemony.

If more countries or institutions decide to hold BTC instead of dollars, global demand for dollar reserves could decrease over the long term.

Legitimising a rival store of value may shake confidence in the greenback, eroding America's global reserve-currency status and the advantages it confers. Without strong international demand for the dollar, the US could ultimately lose its "exorbitant privilege" to print and borrow at low interest rates.

Alongside the BTC policy, the Trump administration is also fundamentally reshaping US trade policy. It has slapped 25% tariffs on Canadian and Mexican imports; increased tariffs on Chinese goods (driving the total average US tariff against that country to 39%); and threatened similar measures against European agriculture.

Because Canada and Mexico rely so heavily on trade with the US, tariffs reduce their exports and dollar inflows, weakening their currencies. By contrast, China's more diversified export base and controlled currency regime allows it to mitigate US tariff effects and support the renminbi.

Moreover, since the US relies so heavily on intermediate inputs from China, the tariffs will raise US production costs, driving up consumer prices and inflation, and eroding the dollar's appeal.

In addition to reducing demand for US goods and the dollars to buy them, Trump's policies have introduced unpredictability and thus reduced confidence in US markets.

His threats are already pushing the European Union to consider greater currency diversification, and to look for alternative markets.

With fewer investors choosing to hold dollar-denominated assets, the dollar has begun to weaken.

Can the US really adopt BTC as a strategic reserve and pursue such trade policies without jeopardising the dollar's global standing?

Countries commonly hold multiple reserve assets -- euros, yen, pound sterling, or gold -- in addition to the dollar. Yet BTC's unique, decentralised structure and finite supply set it apart from these traditional holdings.

By formally endorsing it, the US could inadvertently accelerate a global shift away from dollar reserves.

Trump and his team seem to be betting that other forces will kick in, owing to foreigners' outsize dependence on the US economy. The assumption is that foreign producers will accept lower prices to remain competitive, or that foreign currencies will depreciate to offset the effects of US tariffs, shifting the burden onto foreigners rather than American consumers and producers.

Such is the thinking behind the so-called "Mar-a-Lago Accord": the Trump administration's strategy of leveraging punitive tariffs to weaken the dollar, reduce US borrowing costs, and boost manufacturing -- all while preserving the dollar's global dominance.

Unlike the Plaza Accord or Louvre Accord, in which major economies agreed to coordinate exchange rates, the US is coercing its major trading partners and foreign central banks into weakening their currencies relative to the dollar, ultimately favoring US economic interests.

However, if these economic partners refuse to cooperate, the plan could unravel, and all of the accord's goals could be derailed.

Much of this strategy comes from a November 2024 paper by the designated chair of Trump's Council of Economic Advisers, Stephen Miran, who has proposed that the US introduce tariffs in a measured way so that it can collect revenues from import duties without sparking prohibitively high prices for consumers.

To