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The future of money

Bitcoin's potential role in reshaping global economies

The future of money

_{As we approach a critical juncture in the evolution of global finance, one thing is clear: the first major economy to officially adopt bitcoin as a reserve asset will secure an unprecedented economic advantage. Game theory – a framework used to understand strategic decision-making – helps explain why. In situations where the actions of one party influence the decisions of others, game theory shows that individual actors (including nations) are motivated to make moves that secure their own best outcome, even if that decision is based on what they expect others to do.}

_{In the case of bitcoin, the incentives, fears, and motivations that drive action are clear. The limited supply of bitcoin creates a strong incentive for countries to adopt it early, because those who move first can acquire bitcoin at lower prices and benefit from its rising value as more nations follow suit. The fear of being left behind, of seeing other countries reap economic rewards and secure dominance in a new financial order, will eventually prompt even the more hesitant players to act.}

_{Once the first country embraces}_bitcoin_{, others are compelled to follow to avoid being at a competitive disadvantage, similar to the dynamics in game theory, where the decisions of one actor drive the actions of others.}

_{Those who adopt bitcoin early will likely not only see financial gains but may also attract the world’s leading innovators, entrepreneurs, and capital, positioning themselves for long-term success.}

_{USA leading the way}

_{We saw movement in the developing world with El Salvador building a stash of bitcoin over recent years. In the developed world the US appears to be the first mover following the re-election of Donald Trump.}
_{In March 2025, President Trump signed an executive order creating a Strategic Bitcoin Reserve as well as a Digital Asset Stockpile, which will consist of other forms of digital currency.}

_{The US government already holds more than 200,000 bitcoins as a result of asset seizures. and is proposing to expand these reserves in a budget-neutral way - it has been mooted that the recent tariff proceeds on imports of foreign goods could be used to buy more bitcoins. The proposal is part of his broader vision to make the US the ‘crypto capital of the planet’.}

_{Trump's plan goes beyond mere adoption; it is also about making bitcoin strategically important. For example, he has suggested using the bitcoin reserve as a mechanism to pay down the national debt, which would}
_{represent a radical shift in the country’s financial strategy. David Sacks, the White House AI and Crypto Czar, has likened the Strategic Bitcoin Reserve to 'a digital Fort Knox' for the asset often called digital gold.}

The future of money

_{A bitcoin reserve could serve a dual purpose: safeguarding the country’s wealth and using bitcoin’s appreciation over time to offset growing liabilities. Bitcoin’s finite supply guarantees that as more nations adopt it, early adopters – like the US – would see the value of their holdings rise exponentially, making it an increasingly valuable asset for debt reduction.}

_{Trump’s proposal aligns with his longstanding criticism of the Federal Reserve’s monetary policy and his desire to shift away from relying solely on fiat currency. By leveraging bitcoin’s deflationary nature, the US could reduce its dependency on dollar-based debt solutions, potentially strengthening its financial position globally.}

_{Another prominent bitcoin advocate is Republican Senator Cynthia Lummis, who has been laying the legislative groundwork to support these efforts.}

_{Her proposed “Lummis-Gillibrand Responsible Financial Innovation Act” outlined a comprehensive regulatory framework for digital assets, including provisions that could help accelerate the adoption of bitcoin as a strategic asset, and the US has since clarified bitcoin's position as a commodity.}_[liv]_{Lummis has also echoed Trump’s proposal that bitcoin serve as a critical asset in paying down the US national debt. In March, she co-sponsored the BITCOIN Act, which, among other things, proposes accumulating one million BTC over five years to safeguard national wealth.}

_{Lummis has previously discussed the potential of bitcoin’s long-term appreciation to generate significant capital for the Treasury without having to rely on inflationary measures or additional borrowing. Interestingly, her proposal to create a strategic bitcoin reserve had already begun attracting increasing support from both parties even before Trump’s return to the White House, as Forbes reported in early October 2024.}

_{If a second Trump administration were to accumulate a substantial bitcoin reserve and implement Lummis' proposed regulatory framework – still a reasonably large 'IF' given the fierce institutional opposition such legislative moves are likely to face – the US would not only position itself as a leader in}

_{the next phase of the digital financial revolution but also strengthen its fiscal outlook.}

_{If other countries begin to follow suit, the value of bitcoin will continue to rise, increasing the wealth stored in the reserve and providing the US with an unprecedented tool for managing its debt.}

_{This could trigger a much-needed monetary reset from a fiat currency standard to a bitcoin standard.}

The future of money

_{Given the size, strength and sophistication of London’s financial services sector, the UK is also well placed to become an early adopter of bitcoin, and reap the benefits. However, will the UK government, the Bank of England and the City of London be willing to give up some of their entrenched power and privileges in order to do so?}

_{The Bank of England, like all central banks, is a privileged and powerful regulator. Crucially, it gets to set the price of the main product it regulates: money. When central banks set their respective country’s benchmark interest rates, they are essentially setting the price of money.}

_{Not only that but they also get to create money out of nothing, which is surely one of the most awesome powers an institution could dream of having. Will the Bank of England, the world’s second oldest central bank, be willing to sacrifice some of that power for the overall benefit of the United Kingdom and its denizens?}

_{The UK government is, of course, also heavily invested in the monetary status quo, for different reasons. Under the current fiat currency system, whenever it wants to borrow money, all it needs to do is issue bonds or gilts and pay a relatively small, though compounding, interest on that new debt some time in the future. In the past, these gilts would take the form of paper certificates but today they are merely digits on a screen. In that system, there is virtually no limit to how much money - effectively, how much debt - governments can create, particularly when central banks are willing to buy up large portions of that debt.}

_{Furthermore, because the GBP is debt-based in nature, it needs a higher and higher money supply over time to pay the interest on that debt, which leads to more debt, and so on in a vicious circle. History shows that this vicious circle can only end by abandoning the debt-based money either through a monetary reset or hyperinflation.}

A world awash in debt

_{Over the decades, governments have taken full advantage of this ability, resulting in an unprecedented accumulation of debt. Decades of rampant borrowing, compounded by interest, have pushed global debt levels to unimaginable heights. This year, explicit government debt across the world is expected to surpass $100 trillion – a sum almost equal to the size of the global economy, according to the IMF. [lvi]}

_{As of 2024, the UK's public sector net debt rose to approximately £2.7 trillion, representing a debt-to-GDP ratio of close to 100%. This is a level not seen since the early 1960s.}_[lvii]_{What’s more, this figure does not include the UK government’s unfunded liabilities, which will arguably pose an even greater fiscal challenge down the road.}

_{Government-managed pension schemes alone have amassed liabilities estimated at around £6.4 trillion by 2018. This figure includes both state pensions and unfunded public sector defined benefit pensions for employees in sectors such as healthcare, education, and civil service. The largest component of these unfunded obligations is the state pension, estimated at £4.8 trillion.}_[lviii]

_{These liabilities have continued to grow, with recent reports indicating that the public sector pension bill alone has surpassed the UK's GDP for the first time, underscoring the substantial fiscal pressures these commitments add to public finances.}_[lix]

_{As of 2024, the US national debt surpassed $35.8 trillion, representing an enormous fiscal burden. The debt-to-GDP ratio has climbed above 120%, indicating that the country’s debt now exceeds its entire annual economic}_output._[lx]_{This rising}_{debt is partly attributed to substantial spending on social programs and pandemic relief, with the rate of increase reaching about $1 trillion annually due to compounding interest and ongoing budget deficits.}

_{Like the UK, the US faces an even larger looming financial issue: unfunded liabilities. These include future obligations from programs like Social Security and Medicare, which are not fully funded by current taxes or revenue.}

_{Estimates of these unfunded liabilities vary but are widely reported to be around $220 trillion.}_[lxi]_{This figure encapsulates the financial strain expected as the population ages and healthcare costs continue to rise, creating a substantial fiscal challenge for future administrations and taxpayers alike.}_[lxii]

_{When combining these unfunded obligations with public and private sector borrowing, the total debt burden becomes astronomical. For example, when factoring in unfunded liabilities, the US now has a total debt-to-GDP ratio exceeding 946%, while the UK's total debt-to-GDP ratio is 248%. These figures represent unsustainable levels of debt, threatening the long-term financial stability of both nations.}

Total debt calculations including unfunded liabilities

_{For each country, we add the national debt to the unfunded liabilities to get the total debt:}

_{United States:}
_{National Debt}_{: $35.8 trillion}
_{Unfunded Liabilities}_{: $220 trillion}
_{Total Debt}_{= $35.8 trillion + $220 trillion = $255.8 trillion}
_GDP_{: $26.8 trillion}
_{Total Debt to GDP Ratio}_{= $255.8 trillion / $26.8 trillion = 946%}

_{United Kingdom:}
_{National Debt}_{: £2.7 trillion}
_{Unfunded Liabilities}_{: £6.4 trillion}
_{Total Debt}_{= £2.7 trillion + £6.4 trillion = £9.1 trillion}
_GDP_{: £3.1 trillion}
_{Total Debt to GDP Ratio}_{= £9.1 trillion / £3.1 trillion = 293%}

_{Globally, explicit debt, encompassing government, corporate, and household borrowing, reached a record $313 trillion by the end of 2023, amounting to just o}_{ver 330% of global GDP.}_[lxiii]

_{However, this figure excludes the staggering unfunded liabilities that many governments face, particularly in advanced economies. When factoring in these unfunded obligations, such as pensions and healthcare, the true global debt burden is much higher.}

_{The COVID-19 pandemic turbocharged this debt explosion. Between 2020 and 2021, global debt surged from $226 trillion to $303 trillion, marking the largest one-year debt surge since World War II, according to the IMF.}_[lxiv]

_{By the final quarter of 2023, total global debt had grown by another $15 trillion year-on-year. Much of this debt growth came from the developed world, with countries like the US, Japan, France, and the UK registering the largest increases.}

_{This relentless accumulation of debt comes with a hefty price tag. Interest payments are becoming an increasingly crippling expense for many countries. In 2023, the US government's annual interest payments on its debt crossed the $1 trillion threshold for the first time ever – an 80% increase from the $564 billion paid in 2019.}_[lxv]

_{This enormous figure is driven by the sheer size of the debt – $34 trillion - as well as high interest rates, which governments and central banks have resorted to in an attempt to tame the inflation they helped to unleash with their aggressive borrowing and money printing during the pandemic.}

Total debt calculations including unfunded liabilities

_{High debt levels are closely linked to high inflation, since most of the money that exists today was created through the issuance of debt. It is no coincidence that the sharp increase in debt during the pandemic was quickly followed by decades-high inflation. Central banks, in their attempt to tame this inflation, have rapidly increased interest rates over the past two years.}

_{However, higher rates mean higher loan repayments for governments, households, and businesses alike, adding to the already immense financial strain. In countries like the UK, heavily indebted households are cutting back on essentials such as food and fuel, while businesses face skyrocketing borrowing costs.}

_{Debt distress}

_{When a country can no longer meet its debt obligations - is now a growing concern. The IMF and World Bank estimate that 60% of low-income countries are either at or near debt distress, unable to service their debts without external assistance. Even high-income countries are increasingly struggling to manage their ballooning interest payments and rising public debt. Countries like the US and the UK face tough choices: raise taxes, slash public spending, or watch as interest payments eat up more and more of their national budgets.}

_{The path forward for many governments is bleak. With debt levels continuing to rise and interest rates remaining high, the most likely way out is further currency debasement.}

_{Governments can – and likely will – resort to printing more money to reduce the real value of their debt, but this will come at the cost of higher inflation.}

_{This inflation erodes the purchasing power of citizens, shrinking savings and turbocharging inequality. This is a point that even the founder of Keynesian economics, John Maynard Keynes, warned about in a 1919 essay on inflation:}

_{“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.”}_[_lxvi]

_{After decades of relentless money/debt creation, the world faces a debt crisis of historic proportions. And there are no painless solutions.}

_{The most likely response by governments, further currency debasement, while politically more palatable than default or severe austerity, risks creating an even more unstable and volatile world for tomorrow.}

At the monetary crossroads

_{This is where we find ourselves today. But we could be in an even worse place in years to come. Governments and central banks, fully aware that the current monetary regime, the post-Bretton Woods fiat currency system that emerged from the ashes of World War II, is reaching its expiry date, are looking to create a whole new system. The IMF has been calling for a global economic reset since at least 2020.}_[_lxvii]_{What they want is to create a new monetary model that will not only amplify everything that is wrong with the current one - limitless money creation, runaway inflation, unpayable debt levels, etc. - but will make money, as we know it, a thing of the past.}

_{This new monetary system, known as Central Bank Digital Currency, or CBDC, is being developed by 19 of the Group of 20 (G20) economies, 11 of which are already at the pilot stage, according to the Atlantic Council’s CBDC tracker.}_[_lxviii]_{Some countries, including China, Russia and India, could be less than a year or two away from launching their respective CBDCs. The Bank of England is looking into launching a 'digital pound’ – or as some are calling it, a ‘Britcoin’ - sometime in the second half of this decade.}

_{So, what is a CBDC?}

_{According to the Atlantic Council, it is ‘virtual money backed and issued by a central bank’.}

_{The Bank of England, like many central banks, describes it as ‘digital cash’, which is somewhat misleading given CBDCs, as currently envisaged, have precious little in common with cash.}

_{A popular justification for their development is that as the use of cash declines and money and payments become increasingly digital, a public digital option is necessary to preserve the public nature of money. But many observers, including the House of Commons’ Economic Affairs Committee, have described CBDCs as a ‘solution in search of a problem’.}_[_lxix]

_{But CBDCs are much more than that. They threaten to give rise to a whole new system of money that would grant governments and central banks unprecedented surveillance and control powers.}

_{Until now, when we make a digital payment, whether by credit card, debit card or through a bank transfer, we do so using commercial bank money, and it is only the bank and, in the case of card payments, the payment processing company, that have access to that transaction data, and generally speaking that data is of little interest to them.}

_{With a CBDC, governments and central banks will also have full access to that data, with no need for a warrant or court order. And to them, our personal financial data is likely to hold much greater interest. In other words, farewell to financial privacy and anonymity.}

At the monetary crossroads

_{Even more disquieting, CBDCs, unlike all other forms of money to date, can, and most probably will be ‘programmable’. What that means is that rules and conditions can be embedded within the system that define or constrain usage of the ‘money’ - all made possible by recent technological developments such as blockchain and smart contracts.}

_{For example, a CBDC could be used to limit what people can spend their money on, where they can spend it and even to set expiry dates for stimulus funds or welfare payments to encourage users to spend it quickly, all of which will grant central banks and governments far more granular control of individual property rights.}

_{“CBDCs can allow government agencies and private sector players to program, to create smart contracts, to allow targeted policy functions,” said Bo Li, deputy managing director of the IMF, in 2022. “For example welfare payments, consumption coupons, food stamps. This money can be precisely targeted [to determine] what kind of people can own it and how this money can be utilised.”}

_{This, Li says, will allow government agencies to precisely target money where it is most needed. But it will also mean that money is essentially no longer money, since it will no longer fulfil some of the core functions or attributes traditionally ascribed to money.}

_{Programmable money}

_{It will no longer be a reliable medium of exchange since the algorithms run by the central bank or third-party commercial lenders will be able to determine whether or not a transaction can go through. They could even block users from being able to use the system altogether.}

_{A CBDC will also not be a store of value since central banks will be able to erode its value even more quickly than they do with today’s fiat currencies. Nor will it be durable since central banks could, as mentioned, set expiry dates for the use of welfare or stimulus funds. In other words, in a CBDC-dominated world money will be something altogether different.}

_{It is impossible to overstate the importance of this shift; its repercussions will be felt in just about every aspect of our lives. After all, money is one half of every transaction we make, the other half being the desired product or service. This is why the nature of money is so important, it determines what we can (and cannot) own, consume or trade.}

_{As public fears have risen about the potential programmable features of CBDCs, central banks have begun to insist that their respective CBDC will not, after all, be programmable. But can their word be trusted? After all, it is the programmable aspects of CBDCs that will grant them much tighter control over the economy, and by extension, our lives. It is hard to imagine them passing up such an opportunity.}

At the monetary crossroads

_{Programmable money is already being put to full use in Thailand. In September 2024, the government began issuing welfare payments to millions of its citizens through a digital wallet. While the digital wallet is not a CBDC and does not appear to be operated by the Bank of Thailand, it is programmed to restrict where payments can be made (strictly within the local area), when (within a six month period) and to whom (small businesses).}_[lxx]

_{It specifies who is eligible for the program (anybody over 16 who earns less than $24,500 and has savings of below $13,000) and who isn’t (those who earn more than that, criminals and people who have been detained or have violated other government programs).}

_{It also stipulates the range of products people can buy with the digital wallet, which includes food and household items but excludes alcohol, tobacco, fuel and a plethora of other items. These restrictions are built into the digital wallet.}

_{The main justification for the program is to stimulate the economy by increasing the circulation of money and encouraging consumption amongst low-income families. Another goal is to promote digitisation, particularly among small-scale enterprises.}

_{While the Thai digital wallet isn’t a CBDC, it does offer a glimpse of how a CBDC could be used. Put simply, a new form of money is under development that could be perfectly surveillable, programmable and seizable, making it an almost perfect instrument of social, political and economic control.}

_{What’s more, this new money system will be totally centralised, making it acutely vulnerable to cyberattacks, hacks, outages or data breaches.}

_{Bitcoin, by contrast, is decentralised, with no single point of failure. It cannot be debased, is open and permissionless, meaning anyone anywhere can use it, with or without the permission of government agencies.}

_{It is also unconfiscatable (no risk of seizure, if keys are stored correctly), privacy conscious (transactions appear on a public ledger but addresses are not linked to one’s identity), and censorship resistant (no one person or group of powerful people/governments can prevent anyone from transacting, or edit/reverse transactions).}

_{In sum, thanks to technological advances, the nature of money, whether we like it or not, is set to change in a drastic way.}

_{The key is not to think about bitcoin only in comparison with the declining fiat currency system in place today but also with the CBDC system being built for tomorrow.}

_{As we stand at this monetary crossroads, we face the starkest of choices between two irreconcilable systems of money. It is time for us all to think and talk about the future of money.}