America’s crypto turn may be a debt sustainability ploy

When empires unravel, they do so under the weight of their debts. Pax Americanais unlikely to bean exception. Yet, the US has long mastered the art of debt management.

- SRINATH SRIDHARAN & ANAND VENKATANARAYANAN

In 1933, it devalued the dollar by raising the legal price of gold, enabling more money tobe printed. In 1971, it abandoned the gold standard entirely when its reserves could no longer cover the dollars in circulation. With reserve currency privilege, it financed its trade deficits by printing dollars and recycling foreign exchange inflows into Wall Street, which eventually triggered the subprime crisis of 2008 and scorched Europe for a decade.

The essence of American financial power issummed upin the phrase ‘My dollar, your problem.’ Empires export their crises while importing prosperity, and then cloak the arrangement in high-minded phrases such as “rules-based international order.” History shows their playbook when debts become unmanageable. First comes devaluation.

Thena withdrawal from contested peripheries, Finally, ‘protection deals’ imposed on allies. Ancient Rome pioneered thisstrategy, retreating from Britain in the late 4th century while creating tributary client states, Britain followed suit, inventing the Commonwealth and retreating east of the Suez. Both stepssignalled imperial decline.