Is The US Ready To Abandon Its “Exorbitant Privilege” For Bitcoin?

The United States will have to abandon the exorbitant privilege of the dollar if the goal is truly to become an industrial power again. Good news for bitcoin.

Reduce the trade deficit at all costs

Stock markets are struggling against the ambition of President Trump to reduce the huge trade deficit, even if it requires tariffs.

The dollar is also struggling, which is, however, a necessary evil to revive production and exports. In other words, the United States seems ready to mourn its monetary hegemony.

Several senior U.S. government officials are not very supportive of the dollar’s reserve currency status. This is the case of Stephen Miran, chairman of the small White House Economic Council. For him, a strong dollar weighs on the manufacturing industry by making American exports more expensive.

Vice President Vance shares the same view. There is this idea in MAGA circles that the reserve currency status is a double-edged sword resulting in unsustainable debt. The problem is that this new approach has not pushed borrowing rates down, much to Treasury Secretary Scott Bessent’s dismay.

The explanation lies in massive sales by China, which sees no reason to continue buying U.S. debt if the American market closes its doors to it.

In total, foreign governments hold about $8.5 trillion in U.S. Treasury bonds. Not to mention those held by private foreign investment funds. It’s a serious Damocles sword. Borrowing rates would soar if the rest of the world started offloading its dollars. The U.S. government would then have no choice but to reduce its budget deficit given its debt already reaching 124% of GDP.

Soon a QE?

It must be clearly understood that a 1% increase in borrowing rates leads to a bill representing 1.24% of GDP that must be paid either by higher taxes or by budget cuts. That is $360 billion.

Knowing that the government currently pays nearly $1 trillion in interest. To compare with tax revenues of $5 trillion for a budget of $7 trillion.

Reducing the double trade and budget deficits will not be easy. It is even likely that the Fed will have to print money to lower rates by buying Treasury bonds.

This is called “Quantitative Easing” (QE) in jargon. The result is that the Fed returns the interest collected to the government. And since the Fed still holds $4.65 trillion in Treasury bonds, this means the U.S. government does not pay interest on 1/7 of the total U.S. debt.

QE is obviously inflationary since it allows the government to continue to borrow. That said, the stated goal being to reduce expenses by $2 trillion, QE would not be inflationary.

Donald Trump clearly wants a boost from the Fed. Rate cuts would be welcome. Problem is, Jerome Powell opposes this because inflation could soon soar due to tariffs.

Donald Trump will be able to appoint a new Fed chair next year. Will he wait until then?

Twilight of the imperial currency

The end of the dollar as the dominant international reserve currency no longer inspires any smiles. The Deutsche Bank declared at the beginning of the month that “the properties that make the dollar a safe haven currency are eroding”.

Capital Economics added a few days later: “It is no longer an exaggeration to say that the dollar’s reserve status is at least somewhat questioned”. Former French Economy Minister Bruno Le Maire also senses a change of wind:

There are massive withdrawals by Chinese and Japanese investors from U.S. Treasury bonds. […] For Europeans, the question becomes: what to do? They can come to the rescue of the dollar in a desperate effort to save the post-1945 international order, in ruins. The demand comes directly from the White House which invented this smoky idea of 100-year Treasury bonds with no interest. The deal is clear: you finance our debt in exchange for escaping tariffs. Amazing this new American habit of putting a gun to the heads of their allies. Amazing and revolting. […] For the first time since 1945, Europeans have a unique opportunity to make the euro a global reference currency.

Bruno Le Maire, Former French Economy Minister

To do this, Bruno Le Maire suggests that European countries borrow together. The idea is that China would be more willing to make the euro its reserve currency if it can buy “European” bonds rather than Greek or Portuguese bonds.

Another solution would simply be to return to gold, or better, embrace its competitor: bitcoin. We explained this in our article Should you buy Gold or Bitcoin?

The Master Card Bitcoin

America has a huge debt problem and the only reason they can afford it is because the world trades in dollars. That is what Benn Steil, economist at the Council on Foreign Relations, thinks. “At some point, people will seriously consider alternatives to the dollar”…

BlackRock CEO Larry Fink said the same thing in his annual letter to shareholders. “If deficits continue to swell, the dollar risks losing its reserve currency status to bitcoin”.

Bitcoin is a potential international reserve currency. Even White House advisors say they want to accumulate as much of it as possible. Treasury Secretary Scott Bessent knows that the yuan will appreciate strongly if China stops accepting the dollar. But Beijing does not want a strong yuan and will therefore prefer to accumulate gold.

Hence the emerging American strategy to sell gold stocks to buy bitcoins. Washington would kill two birds with one stone: weaken its adversaries and gain control of a reserve currency far superior to gold.

Don’t miss our article: How many Bitcoins can the USA buy?