The reported death of US dollar dominance has been greatly exaggerated. The dollar’s demise has been repeatedly prophesied, supposedly threatened by any number of currencies including the euro, the yuan, and recent hints of a gold-backed currency from the BRICS countries (Brazil, Russia, India, and China).

Will the US dollar maintain its global dominance? Is there a role for bitcoin in US policy?

In a recent paper titled “The Treasury Standard: Causes and Consequences,” which was published in an edited volume of articles related to bitcoin, economist and AIER SMP Senior Fellow Joshua R. Hendrickson explores the historical relationship between central banking and national security. He finds that the US dollar dominance of the international monetary system and associated demand for US Treasury bonds helps reinforce America’s global military regime. 

Further, the paper demonstrates how American officials and policies have actively contributed to expanding this system. 

Hendrickson dubs this system “The Treasury Standard.” His paper has important implications for the future of bitcoin and how it might be treated by governments.  

Read ‘The Treasury Standard’ 

There is much to like in “The Treasury Standard.” First, Hendrickson devotes two full sections to the government’s historical role in money. Section 2 starts with theories of commodity money and coinage before moving to bills of exchange and banknotes. The evolutionary process he describes fits the historical evidence.

Alternative theories emphasize the role of the state in creating money and determining the type of money used. As Hendrickson correctly notes, however, governments did not create money. Rather, they have continuously intervened in the monetary system to benefit themselves through “debasement, devaluation, and currency issuance,” often at the expense of the public. Despite such abuses, emergency spending powers are vital to the preservation of the nation itself. These costs and benefits must balance in order to minimize harm to the public and maximize long-run stability.

In the case of the United States, the ascendance of the Treasury Standard strengthened the growing relationship between national security and the monetary system. It solidified the Treasury’s international influence by making foreign powers reliant on US policy. However, persistent deficits, as experienced in recent decades, could destabilize this equilibrium.

Second, Hendrickson addresses an issue that is often avoided by economists: the role of policy in creating the Treasury Standard. Economists like simple stories about the effect of price controls and other policies, which might include capital controls or exchange rate manipulations in international finance. In contrast to the usual economic approach, Hendrickson describes the Treasury Standard as a mix of coordinated policies and political pressure to achieve a stated end: dollar dominance.

Policy Implications

While Hendrickson does not discuss bitcoin directly in the paper, he nonetheless provides some insight for thinking about bitcoin-related policies. Should the US government encourage bitcoin adoption? Should it hold bitcoin as a reserve asset? How would such pro-bitcoin policies affect its fiscal and monetary policy?

International Bitcoin Adoption

On the surface, greater bitcoin adoption would seem to undermine the Treasury Standard. But that only holds if one assumes those adopting bitcoin would have otherwise used the dollar. If, instead, one expects bitcoin to displace other major currencies, then its ascension might bolster the Treasury Standard by functioning as a neutral dollar alternative. 

The Treasury’s decision to weaponize the dollar through sanctions and exclusions from the SWIFT bank routing network has made the dollar less attractive to foreign governments. Foreigners are already starting to turn away from the dollar, and foreign governments are actively developing dollar alternatives. In this context, the US benefits—that is, suffers less—from the adoption of a neutral alternative like bitcoin. Ideally, the Treasury would like foreigners to continue using the dollar, but if they do move away from the dollar, the Treasury would prefer them to switch to bitcoin rather than to the yuan, ruble, or some other currency controlled by one or more rival governments. 

Of course, bitcoin is only useful to the US in this context if foreigners prefer it to the available alternatives. The success of the Swiss franc suggests they might use bitcoin as a reserve asset or for use in international trade. Due to its well-known stable long-term value, the Swiss franc is widely used in international trade as a vehicle currency–that is, between parties in non-Swiss nations, not with the country of Switzerland itself. As I have discussed elsewhere, “despite Switzerland having only the 19th-largest economy in terms of GDP, the Swiss franc is the 4th most commonly used currency in international trade and the 6th most widely held foreign reserve currency.” Thus, there seems to be strong demand for a stable currency in international trade, and bitcoin offers even more security against the risk of monetary expansions than the Swiss franc. 

Government Bitcoin ‘Hodling’

What if the Treasury itself were to hold (or “hodl” in crypto lingo) bitcoin, as in proposals such as the Strategic Bitcoin Reserve? As Hendrickson has elsewhere explained, holding bitcoin would provide stability through diversification of the government’s assets, creating an option that could be exercised if the Treasury’s fiscal position deteriorates. The government’s commitment to bitcoin could have some self-reinforcing value of stabilizing the price, setting expectations and quelling complaints of the asset being intrinsically worthless.

Despite these benefits, it is not clear what effects “hodling” bitcoin would have on the federal government’s fiscal position. A higher bitcoin price (which most Bitcoiners take for granted, but many others question) would enable a bitcoin-holding government to pay down some of its debt. But it would not require it. In fact, politicians might respond to a higher bitcoin price—or, even an expected higher bitcoin price—by spending even more! Thus, a bitcoin reserve may not have the effects many Bitcoiners expect unless it is coupled with other policies that constrain spending.

BitBonds

Another proposal would see the government issue Treasury bonds that are at least partly backed by bitcoin, with any profits realized from the bitcoin backing shared between investors and the government. These “BitBonds,” proponents argue, would allow the government to take advantage of the risk reduction associated with diversification and, in doing so, lower the government’s cost of borrowing. Some private companies are already taking a similar approach in order to finance real estate loans. The BitBonds proposal is also similar to a proposal by Judy Shelton, which would see the US Treasury issue bonds backed by gold. 

As with the bitcoin reserve proposal, it is not clear that issuing BitBonds would do much to improve the government’s financial position. Such proposals, on their own, do not constrain federal spending. Indeed, they relax the existing constraints on spending, which might encourage politicians to spend even more.

Bitcoin and the Fed

While the fiscal benefits of a bitcoin reserve or BitBonds are unclear, some point to potential monetary benefits. Would the establishment of a bitcoin reserve or the issuance of BitBonds provide an effective constraint on the actions of the Fed? Maybe. The answer depends on how such efforts were implemented.

Holding bitcoin as a reserve asset does not directly constrain the Fed. Domestic holders of Federal Reserve notes have not been able to redeem those notes for any asset since we went off the gold standard in 1933. Even if the Fed still owned gold today (which it does not), it would not be required to redeem dollars for gold. Similarly, if the Fed were to hold bitcoin reserves, it would be under no obligation to redeem its notes for bitcoin. It might sell its bitcoin to protect the purchasing power of the dollar, should the demand for dollars decline. But it would not be required to do so. Hence, holding bitcoin—on its own—would not constrain the Fed. It would merely give the Fed an option similar to that provided by other assets the Fed holds. 

Although holding bitcoin would not constrain the Fed, the existence of bitcoin might. If bitcoin were to provide a neutral dollar alternative in international finance, as previously discussed, it would provide an alternative for dollar users concerned about higher inflation. The Fed would have to take that exit option into account when setting policy. Hence, the Fed’s ability to devalue the dollar might be limited if bitcoin provides dollar users with an attractive alternative. To be clear: I do not believe bitcoin represents a serious threat to the dollar in the near future. However, all changes are marginal, and marginally higher inflation would encourage some dollar users to rely more heavily on alternatives, including bitcoin.

The prospect of widespread switching to bitcoin is especially pertinent when considering extreme scenarios. Consider, for example, what would happen if the Treasury’s fiscal imbalances continue to the point of near default. Many assume the Fed would intervene to support the economy, lowering interest rates and inflating the dollar to avoid fiscal default. However, bitcoin—and, indeed, any credible dollar alternative—would limit the Fed’s ability to do so. Moreover, a general understanding that the Fed will be limited in its ability to mitigate the damage of default raises the expected costs of default. Hence, the existence of bitcoin might encourage politicians to rein in excessive spending or raise additional revenue in order to avoid approaching default in the first place.

Conclusion

Hendrickson takes history and politics seriously. In “The Treasury Standard,” he provides a theory of dollar dominance in the post-Bretton Woods monetary system based on the needs of emergency war financing while minimizing economic disruptions and explains how this balance may be destabilized by unsustainable US debt. While he focuses on the historical and political forces that established the current regime in the paper, he also provides a valuable starting point for thinking about the future role and potential consequences of bitcoin in the international monetary system.

This article is based on comments presented at the Satoshi Papers Symposium at the University of Austin (UATX), April 16, 2025.

In 1961, with global politics chilled by the looming Cold War, President Dwight D. Eisenhower delivered his farewell address, warning the nation of a military-industrial complex.

“In the councils of government, we must guard against the acquisition of unwarranted influence,” Eisenhower said. “The potential for the disastrous rise of misplaced power exists and will persist.” That is true of great corporate influence over policy, combined with political power, whether the buying branch is the military or some other federal power. 

More than 60 years later, those words ring prophetic. A new industrial complex is taking shape, not in arms and artillery, but in silicon and circuitry.

In 2020, governments worldwide locked down businesses and citizens in an attempt to mitigate the spread of COVID-19. Mandated shutdowns brought supply chains to a standstill, leaving goods stranded and consumers waiting. Taiwan Semiconductor Manufacturing Company, TSMC, produces more than 50 percent of the world’s semiconductors, the miniscule computer chips found in nearly all electronic devices.

In 2022, The Daily Economy published contemporary coverage of the phenomenon: 

If you’ve tried to make a purchase recently, anything from a new car to a laptop to a washing machine, you’ve likely felt the pinch of the supply shortfall. Any product relying on semiconductor chips is likely to be delayed, limited, or just plain unavailable. General Motors earnings slid 40 percent earlier this year, as nearly 95,000 vehicles languished for want of this or that semiconductor chip. Semiconductor shortages delayed the production of as many as eight million vehicles. While carmakers were hit by the shortage first, Goldman Sachs estimates 169 industries have been impacted. Sony couldn’t produce enough PlayStation 5 consoles to meet day-one demand. Apple and Samsung scrambled to find the chips suitable for LED backlighting in their tablets and laptops.

Firms that embed chips in their products kept around a 40-day supply on hand in 2019. That inventory crashed to less than five days in 2021, according to a Commerce Department report.

The market shock motivated Washington, DC to embrace a protectionist path, passing the 2022 CHIPS and Science Act, intended to re-shore semiconductor production. The Act’s cheerful backronym “for the Creating Helpful Incentives to Produce Semiconductors (CHIPS)” optimistically focuses on the intent, rather than the impact, of meddling such complex manufacturing.

Similar subsidy programs have since been launched in Europe, Japan, and South Korea, placing semiconductors at the center of a global industrial-policy arms race. The CHIPS and Science Act was designed to reduce dependence on Asian manufacturing and bring semiconductor production back to US soil. Well before the massive subsidies were introduced, Intel, Samsung, and Micron began construction of manufacturing centers in the US. TSMC from Taiwan, Samsung from South Korea, and Micron Technologies based in Boise, Idaho, are recognized as the “Big Three” in advanced semiconductor chip production. Their accelerating US expansion has also brought the industry into deeper entanglement with government.

Washington’s appetite for power knows no bounds. Not content to maintain his predecessor’s subsidies, US President Donald Trump is exploring options to take a direct government-owned share in not just Intel, but defense firms such as Lockheed Martin, Boeing, and Palantir. This continues an outlandish precedent where the US government owns a “golden share” of US Steel and most recently acquired an $11 billion or 10 percent stake in Intel. 

Intel’s stock has halved since 2021, and remains a struggling firm despite $7.86B in CHIPS Act subsidies. Rather than allowing Schumpeterian creative destruction to take its course, policymakers decided to restore Intel’s position as the “national champion.” The government’s direct stake and subsidies ensured Intel’s survival and renewed its relevance. Washington now expects a quid pro quo from firms that took subsidies. In addition to this, Nvidia’s $5 billion, four-percent stake in Intel completed a triangle linking Silicon Valley’s crown jewel, Washington’s chosen national champion firm, and federal policymakers. By buying into a failing firm propped up by public funds, Nvidia bought itself a seat alongside Washington bureaucrats, outside the usual regulatory channels. That’s access its rivals can’t match.

When Washington subsidizes, invests in, and regulates the same industry, it stops being a neutral umpire and becomes an active player on the field. Policy decisions soon skew toward protecting the government’s investment and interests, rather than fostering true competition and innovation. Firms like TSMC, AMD, and Samsung will face a moral hazard, and replicate it to their competitors: it will now be much more cost effective to court politicians than to invest in R&D or compete on innovation — creating things buyers want. 

James Buchanan, Nobel laureate and author of Politics without Romance, claimed we should never assume policymakers act as benevolent social planners, “Politicians do, in many cases, try to further what they think is the interest of the whole group, but in a sense, they’re just like the rest of us. Sometimes they’re motivated in terms of their own private interest, just like a businessman.” In this case, tying Washington’s interest directly to Intel’s success will shape semiconductor research and development, regulation, and global markets for years to come. Political and corporate incentives align to promote the interests of those who broker the deals — not the constituents or customers. 

Reflecting upon recent financial disclosures, President Trump personally owns shares of Nvidia and Intel worth between $500,000 to $1,000,000. Coincidentally, in true Art of the Deal fashion,  Intel’s stock rose 23 percent from the new partnership with Nvidia, while Nvidia’s own stock rose roughly 4 percent. The public is left wondering whether policy is being crafted to serve national security or private portfolios. Ultimately, the price of this alliance will be borne by consumers, who face higher costs and slower innovation, and by taxpayers, forced to fund the rescue of a company the market had already written off.

The line between policymaker and producer has all but vanished; the businessman and the bureaucrat are now one and the same. This is no longer a free market but a semiconductor cartel, where government, regulators, and industry titans coordinate the future of computing power. By combining subsidies, ownership stakes, and regulation, Washington leaves little room for genuine competition. This “tech industrial complex” locks in incumbents, crowds out rivals, and turns policy into corporate protection. 

National economic policy of the favor-buying and rent-seeking kind will only accelerate, as other industries seek to garner favor and funding from buyable bureaucrats. The innovation engine that made Silicon Valley great risks becoming a state-sponsored utility. As Milton Friedman famously quipped, “If the federal government were put in charge of the Sahara Desert, within five years there would be a shortage of sand.”

To avoid turning the semiconductor industry into a barren desert, Washington must step back and let market signals and free investment irrigate innovation.