The scale of US debt has surpassed 36.4 trillion dollars. Can Bitcoin become the future international settlement currency?

At the beginning of the new year, the scale of U.S. national debt has exceeded $36.4 trillion. How will the U.S. debt crisis be resolved, and can the international hegemony of the dollar continue? How will Bitcoin respond, and what will be the future international settlement units? This article will start from the debt economic model of the United States, exploring the debt risks faced by the internationalization of the dollar, as well as analyzing whether the U.S. debt repayment plan is feasible. Throughout history, we will see what direction U.S. debt indicates for Bitcoin.

Establishment of the US Debt Economic Model

After the collapse of the Bretton Woods system, the dollar hegemony rapidly developed in the debt economic model.

The Bretton Woods system collapsed, and the US dollar became a fiat currency.

After World War II, the Bretton Woods system was established, linking the US dollar to gold, forming an international monetary system centered around the dollar. However, the famous "Triffin Dilemma" accurately predicted the collapse of this system: the demand for international settlement continued to grow, the dollar kept flowing out of the United States and accumulating overseas, and the US faced a long-term trade deficit; while the dollar, as an international currency, had to maintain stable value, which required the US to have a long-term trade surplus. Additionally, the Vietnam War exacerbated the double deficit, and in 1971, Nixon announced the decoupling of the dollar from gold, transforming the dollar from a commodity currency to a fiat currency, with its value no longer guaranteed by precious metals but by the credit of the United States.

Debt Economic Model Establishment, Dollar Hegemony Continuation

Based on this, the United States' debt economic model is established: global trade is settled in US dollars, and the US must maintain a huge trade deficit to allow other countries to acquire large amounts of dollars; countries around the world purchase US Treasury bonds to preserve and appreciate the value of dollars, and then reinvest in US financial products, causing dollars to flow back into the US.

The US dollar, as the world's currency, is a form of international public good and should maintain value stability. However, after abandoning the gold standard, U.S. monetary authorities gained the right to issue currency, allowing the U.S. to change the value of the dollar according to its own interests. The hegemony of the dollar has been strongly sustained through a debt-based economic model.

The Internationalization of the Dollar Faces Risks

The US dollar faces risks from the economic model of US Treasury debt and commercial real estate debt.

is contrary to the internationalization of the US dollar and the return of manufacturing.

The debt economic model of the United States is an important support for the internationalization of the US dollar, but it is not sustainable. The Triffin dilemma still exists. On one hand, the internationalization of the dollar requires maintaining long-term trade deficits, exporting dollars, and having them accumulate overseas. Once overseas investors become concerned about the repayment ability of US Treasury bonds, they may turn to other alternatives and demand higher interest rates on US Treasury bonds to balance future repayment risks, putting the US in a vicious cycle.

On the other hand, the United States needs to promote the return of manufacturing, which will alleviate the trade deficit and lead to a shortage of dollars, resulting in a significant appreciation in the long term. This will hinder the dollar's role as an international settlement currency. The idea that the United States can simultaneously maintain dollar hegemony and the return of manufacturing is unrealistic. Currently, the appreciation pressure on the dollar is not yet clear, and it is expected that there will be no fundamental change in the trade deficit in the short term, with the dollar primarily under depreciation pressure.

Commercial Real Estate Debt Crisis

In addition to the risks associated with U.S. Treasury bonds, commercial real estate also carries debt risks.

According to a recent report released by Moody's, due to the continued expansion of remote working, the office vacancy rate in the United States is expected to rise from 19.8% in the first quarter of this year to 24% by 2026. McKinsey predicts that by 2030, the demand for office space in major global cities will decline by 13%, and in the coming years, the market value of global office properties could shrink significantly by $800 billion to $1.3 trillion.

China International Capital Corporation research shows that by the end of 2023, commercial real estate loans accounted for 26% of total loans in the U.S. banking system, while large banks had a commercial real estate loan ratio of only 13%, and small to medium-sized banks reached as high as 44%. With $1.5 trillion in commercial real estate liabilities set to mature next year in the U.S., if small to medium-sized banks were to face defaults, it could trigger a financial crisis.

Analysis of US Debt Repayment Plans

How to break this vicious cycle mainly depends on how the large-scale U.S. national debt should be repaid. Borrowing new debt to pay off old debt is akin to a "Ponzi scheme"; sooner or later, the dollar will lose its credibility and thus its status as the world currency, which is clearly not feasible. The following analyzes the feasibility of several repayment options.

Sell gold to repay US debt?

Some have proposed selling gold to repay U.S. debt. However, this is not feasible. Gold is a universal currency with international spontaneous consensus, playing a crucial role in stabilizing currency and responding to economic crises. The vast gold reserves give the U.S. strong leverage in the international financial markets. If the Federal Reserve sells gold, it would indicate that the Fed has completely lost trust in U.S. debt, seemingly "in a dead end," and would rather weaken its own influence to cover the "black hole" of U.S. debt, which would undoubtedly lead to a liquidity crisis in U.S. debt, amounting to self-sabotage.

Sell BTC to repay US debt?

Trump once mentioned the idea of using Bitcoin to repay U.S. debt, but this is also unfeasible. Firstly, there are issues with the acceptance of Bitcoin checks. Secondly, the amount of Bitcoin held by the U.S. is not sufficient to resolve the debt crisis. Even if the U.S. establishes a Bitcoin reserve in the future, it would still be difficult to solve the debt problem. Establishing a Bitcoin reserve would undermine the world's confidence in the U.S. dollar and could trigger a financial crisis. Moreover, even if a Bitcoin reserve is successfully established, it would only slightly delay a debt collapse.

Is USD anchored to BTC?

Another idea is to peg the US dollar to Bitcoin, similar to a new era Bretton Woods system. However, this would threaten the dollar's internationalization. First, any group or individual could potentially gain the power to issue currency, undermining the dollar's international status. Second, the volatility of Bitcoin could affect the international community's confidence in the stability of the dollar. Finally, the limited amount of Bitcoin held by the US could constrain its monetary policy.

Manipulating the US dollar through BTC?

There is a view that the United States could manipulate Bitcoin like it does gold to control the US dollar. However, this is unrealistic because Bitcoin operates on a decentralized network, and no single entity can fully control its price. Moreover, even if it were possible to manipulate the price of Bitcoin, the liquidity flowing out of Bitcoin would not necessarily flow into the US dollar.

Kill the creditors Japan and the Jewish financial group?

Some have suggested killing off the main creditor Japan or confronting the Jewish financial consortium. But this is impossible in the short term. The cooperation between the U.S. and Japan will continue, as the U.S. needs Japan to play an important role in the alliance system. Moreover, the cost of confronting the Jewish consortium is too high, which could lead to economic instability, and the political influence of the Jewish consortium is increasing, making it difficult to deal with easily.

The Impact of Debt Crisis Outbreak on International Settlement Units

Due to the inability to repay US debt, along with factors such as the commercial real estate debt crisis, a financial crisis may be imminent. In this situation:

Bitcoin short-term decline

According to Exter's Pyramid theory, Bitcoin is currently closer to a high-risk asset, and short-term investment demand may decrease during a financial crisis.

Bitcoin became Noah's Ark

In the long term, Bitcoin is expected to become a safe haven during financial crises and may even become an important pillar of the future international settlement system. The scarcity and decentralized nature of Bitcoin make it an attractive means of storing long-term value. After financial crises, trust in traditional financial institutions and government currencies may weaken, and Bitcoin, as a relatively independent asset, may gain more favor.

Can Bitcoin Become the Future International Currency?

After the collapse of the dollar system, Bitcoin has the potential to become the next generation of international settlement currency. Bitcoin has advantages in the basic functions of currency such as medium of exchange, measure of value, and store of value. Compared to other fiat currencies or cryptocurrencies, Bitcoin has the highest recognition, the widest acceptance, and the strongest influence.

Therefore, Bitcoin has the potential to become the next generation international Settlement unit, and its future development will depend on changes in the global economy and financial landscape.