Bitcoin, CBDCs, and the Architecture of World Order

Why the fight between Bitcoin and U.S. digital money is really a fight over sanctions, deterrence, and global stability.

The debate over Bitcoin and CBDCs is not about finance. It is about power.

This article is an introduction to an economic monetary theory paper and a substitute article of the paper written for the laymen. Read the full, scholarly economic monetary theory paper here.

---

For most of modern history, money has never been just money. It has been power, leverage, deterrence, and—when designed correctly—a substitute for war. The current debate around Bitcoin, central bank digital currencies, and the future of the dollar is often framed as a technological or ideological dispute. In reality, it is something far older and far more consequential. It is a debate about the structure of world order.

The digitization of money is no longer speculative. What remains unresolved—and increasingly determinative of global stability—is which monetary architecture will govern digital settlement at scale. As the U.S. dollar’s effectiveness as an instrument of economic statecraft has eroded since the collapse of Bretton Woods, the United States now confronts a strategic fork: whether the next global settlement layer remains anchored in sovereign monetary infrastructure or migrates toward a non-sovereign protocol such as Bitcoin. This is not a question of payments efficiency or innovation for its own sake. It is a question about deterrence, escalation, and whether financial power can continue to prevent wars rather than accelerate them.

To understand why this matters, it helps to revisit how monetary power has functioned historically. The classical gold standard of the late nineteenth and early twentieth centuries constrained state discretion by tying currencies to a physical commodity. That system produced price stability, but it collapsed under the fiscal demands of total war. States could not fight industrialized wars while remaining bound by convertibility. The breakdown of the gold standard during World War I made this clear.

Bretton Woods was an attempt to solve that problem. The postwar order replaced pure gold convertibility with an institutional architecture anchored to the U.S. dollar, itself convertible to gold, and embedded within new international institutions. This was not merely an economic arrangement; it was a geopolitical one. The United States used its industrial dominance and financial capacity to underwrite reconstruction and security, while allies accepted U.S. monetary leadership in return for stability (Helleiner 2014).

When gold convertibility finally became unsustainable and the Nixon administration suspended it in 1971, many expected the dollar’s dominance to collapse. Instead, it evolved. The anchor shifted from gold to credibility. Deep U.S. Treasury markets, the dollar’s role in global trade, and the pricing of key commodities—most notably oil—in dollars preserved demand for dollar settlement. The so-called petrodollar system reinforced this arrangement, ensuring that global energy markets continued to clear in dollars (Spiro 1999). What emerged was not a rules-based metallic system, but an institutional one.

Over time, this system enabled something new: financial statecraft. Control over dollar clearing, correspondent banking, and settlement infrastructure allowed the United States and its allies to impose costs without firing shots. Sanctions became a substitute for kinetic force. As Henry Kissinger’s broader theory of balance-of-power politics implies, stable orders rely on structures that constrain behavior short of war (Kissinger 1994). In the late twentieth and early twenty-first centuries, dollar-centric finance became one such structure.

This is what political economists Henry Farrell and Abraham Newman later described as “weaponized interdependence.” Control over key nodes in global networks—financial messaging, clearing, settlement—allowed states to coerce others not through invasion, but through exclusion (Farrell and Newman 2019). Monetary power became deterrence.

But deterrence only works if it is credible. And in the past decade, cracks have appeared. The expanded use of sanctions, particularly after Russia’s annexation of Crimea in 2014, has revealed both their strength and their limits. The Russia–Ukraine war made those limits explicit. Cryptographic payment rails and digital assets created alternative pathways for cross-border value transfer, particularly for actors already excluded from legacy systems. These rails do not replace the dollar, but they weaken the completeness of enforcement. Even partial evasion matters, because it alters incentives. When financial pressure becomes porous, states are more likely to resort to force.

U.S. institutions are aware of this. Treasury and Federal Reserve reports now explicitly frame payment infrastructure as national-security infrastructure, not merely a consumer or fintech issue (U.S. Department of the Treasury 2022; Board of Governors of the Federal Reserve System 2022). The question is no longer whether money will digitize, but who controls the settlement layer when it does.

This is where the Bitcoin versus U.S. central bank digital currency debate becomes consequential. If Bitcoin becomes the de facto global reserve settlement layer, the result is a structurally multipolar financial order. Bitcoin’s neutrality, fixed supply, and censorship resistance eliminate discretionary enforcement. While transactions are traceable, traceability without enforceability does not constitute state power. In a Bitcoin-centric settlement world, sanctions lose credibility, financial coercion weakens, and escalation increasingly shifts from economic to kinetic domains. Multipolarity may sound appealing in theory, but historically it has correlated with higher instability and conflict.

By contrast, a U.S. central bank digital currency preserves U.S. and allied hegemony by upgrading the dollar’s role as the backbone of global finance. A sovereign digital settlement rail enables programmable compliance, faster cross-border payments, and more targeted enforcement. This distinction is not moral but functional. Bitcoin is for the people. A USCBDC is for the state.

That separation—between a domestic autonomy rail and an external sovereignty rail—is not unprecedented. History offers a revealing stress test in interwar Germany. Facing severe foreign-exchange constraints and an acute “transfer problem,” Germany implemented a dual-track settlement system in the 1930s. Domestically, the Reichsmark circulated under tight controls. Externally, settlement was segmented through exchange controls, blocked mark accounts, and special foreign accounts known as Ausländer Sonderkonten, or Aski accounts. These instruments were legally non-convertible and usable only for restricted trade purposes, often within bilateral clearing arrangements (U.S. Department of State 1936; International Military Tribunal 1946).

In effect, Germany created different kinds of “money” for different purposes without changing the unit name. Economic historians agree on the trade-offs. In the short run, segmentation conserved scarce foreign exchange and restored state control over external settlement. It allowed authorities to prioritize strategic imports and discriminate among counterparties. But the costs were severe. Non-convertibility produced discounts and shadow exchange rates. Bilateral clearing increased friction relative to multilateral settlement. Segmentation incentivized evasion and black markets. Over time, reputational damage raised risk premia and motivated counterparties to seek exit options (Accominotti et al. 2023; Faudot 2020).

The lesson is not that dual-rail systems are inherently flawed. The lesson is that opaque, discretionary segmentation is unstable. When conversion rules are unpredictable and enforcement is arbitrary, the system collapses into evasion, discounting, and fragmentation.

This is the critical insight for modern policy. A future architecture in which Bitcoin serves as a domestic autonomy rail and a USCBDC serves as the cross-border settlement rail can work—but only if conversion between the two is governed by transparent, rule-bound gateways rather than ad hoc discretion. Control must be exercised at regulated intermediaries and borders, not at the level of everyday domestic transactions. This is precisely why Federal Reserve and Treasury design principles emphasize intermediated CBDCs rather than anonymous retail bearer instruments (Board of Governors of the Federal Reserve System 2022; U.S. Department of the Treasury 2022).

This framing also clarifies why proposals for the United States to adopt Bitcoin itself as a reserve instrument are strategically incoherent. No hegemonic power voluntarily anchors its monetary system to a protocol it cannot modify, suspend, or adapt in crisis. Doing so would permanently surrender lender-of-last-resort capacity, eliminate discretionary response to shocks, and forfeit financial statecraft. That outcome would not democratize global finance. It would fragment it—and remove one of the last non-violent tools for managing escalation.

Seen through this lens, recent oscillations in U.S. political rhetoric on CBDCs are not ideological confusion. They are strategic recalibration. As rival powers develop alternative digital settlement systems, abstention becomes indistinguishable from retreat. Monetary architecture has become a domain of geopolitical competition.

The choice before us, then, is not between freedom and control. It is between order and fragmentation. Monetary systems shape incentives long before conflicts turn kinetic. If financial power continues to provide a credible alternative to war, stability can persist even amid rivalry. If that power dissolves into neutral protocols without enforceable settlement, conflicts that could have been mediated economically will increasingly be resolved by force.

This essay is an introduction to a formal monetary economic theory paper that develops these arguments using economic theory, mechanism design, and game-theoretic modeling. For readers interested in the technical details—constraints, equilibria, and policy design—the full paper is linked below. But the core claim is simple: in a digital age, peace still depends on architecture. And money, as it always has, sits at the center of that architecture.

Read the full, scholarly economic monetary theory paper here.

---

References

Accominotti, Olivier, Thilo Albers, Volker Kessler, and Kim Oosterlinck. 2023. “The Political Economy of the German Default in the 1930s.” Working paper.

Board of Governors of the Federal Reserve System. 2022. Money and Payments: The U.S. Dollar in the Age of Digital Transformation. Washington, DC.

Farrell, Henry, and Abraham L. Newman. 2019. “Weaponized Interdependence: How Global Economic Networks Shape State Coercion.” International Security 44 (1): 42–79.

Faudot, Adrien. 2020. “Multilateral Clearing from Theory to Practice: The Deutsche Verrechnungskasse during World War II.” University of Oxford.

Helleiner, Eric. 2014. Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Order. Ithaca, NY: Cornell University Press.

International Military Tribunal. 1946. Nazi Conspiracy and Aggression, vol. 2. Washington, DC: U.S. Government Printing Office.

Kissinger, Henry. 1994. Diplomacy. New York: Simon & Schuster.

Spiro, David E. 1999. The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets. Ithaca, NY: Cornell University Press.

U.S. Department of State. 1936. “The Foreign Exchange Clearing Methods Used in Commerce With the United States.” Foreign Relations of the United States, 1936, Europe, vol. II.

U.S. Department of the Treasury. 2022. The Future of Money and Payments: Report Pursuant to Section 4(b) of Executive Order 14067. Washington, DC.