Geopolitics behind Bitcoin and the Dollar
May 01, 2024Last modified at May 01, 2024
This is a Series of Articles on the Geopolitics behind the Bitcoin and the Dollar. I’ve been translating the Korean book The Geopolitics of Bitcoin and the Dollar and I’m sharing the translated version here. The original book was published in 2022 by “The Giant’s Garden” and written by Tae Min Oh. This book has been my best of the year 2023, and I hope you enjoy it as much as I did.
Chapter 1: The Return of Geopolitics
Holidays of History
In the early 1990s upon the dissolution of the Soviet Union, Stanford University professor Francis Fukuyama released the renowned book “The End of History.” This book, which discusses Hegel’s philosophy of history, has been recalled more for its title rather than its content. The title was used more as a pun expressing cynicism towards the Western intellectual community for its stirred, optimistic views brought on by the end of the Cold War. Many international political scientists refer to the ensuing period as a “holiday from history,” if not the end of history, for the American unipolarity. But the holidays didn’t last long. As soon as a crisis hit, the “Age of Geopolitics” had returned.
Kant, a philosopher during the Enlightenment, a time when reason was uniting Europe, argued for an ideal international order. Scholars believe that this order could actually work in what Kant called the “holidays of history.” Kant advocated a voluntary confederation of republics that promised not to antagonize each other and to act transparently at home and abroad as a solution to international order. He believed that a system of republics with citizen participation in politics would save the world from the “great graveyard of mankind” which would result from the fight for power among states. This is because, unlike autocratic rulers, the citizens of a republic would seek to avoid war since they would be the ones who would have to bear the pain of the war. Kant further believed that a global system of civic associations could be established. It was also a given tenet among the liberal intellectual community that “democracies do not go to war” which resonated in the intellectual community during the “holidays of history.”
The 20 years from 1990 to around 2010 can be called a “holiday of history” not just because there wasn’t a war or Cold War-like state of hostile confrontation between the great powers. What defined this period was an atmosphere of viewing geopolitical struggles between great powers as a relic of the past. In fact, it wasn’t just geopolitical tensions, but the state itself was seen as an outdated legacy. It was thought that the state might be nothing more than a little fraternity that draws a line on a map, collects taxes, grants visas, and provides welfare services. The elite bureaucrats, especially those running international organizations like the European Union, believed that these international bureaucracies had taken over sovereignty from the nation-state. They assumed that they could replace state violence with their reason, which would serve as the only agent capable of governing the international order according to universally valid principles.
Today, however, the great promise of bureaucrats’ reason, or the universities that cultivated it in the developed world, is no longer very realistic. The fact that states capable of mobilizing force are the ultimate actors in the international order, not just important actors, could not be obscured for long. And the balance of power among nations has always been shaped by the dominance of violence over reason.
The holidays of history are over, the age of geopolitics has arrived
While the “holidays of history” continue, great powers such as the United States, China, and Russia have often displayed their dark intentions, bringing reality to the international order. The shift worth noting is that more countries are getting into the game of changing the international order. Many countries are trying to establish themselves beyond the boundaries of the post-war order destined for them. These countries are beginning to demand or even be called upon to play a role in changing the existing order. In other words, the premise of individual states acting under a set of rules has reached its limit. Even when they are the ones who define those rules. In The Revenge of Geography, a book published as a reflection on his past support for the Second Iraq War, journalist Robert Kaplan describes the resurgence of geopolitics as a shift in the post-Cold War intellectual wave. He argues that geography, which was largely neglected in the first intellectual cycle, is being emphasized in the second.
Napoleon once said, “To know a country’s foreign policy is to know its geography,” but during the “holidays in history,” people believed that human reason had overcome geography. In his international bestseller “The World Is Flat,” New York Times columnist Thomas Friedman prophesied a planet devoid of geography. Geography still lives to this day. In the first intellectual wave of the post-Cold War era, idealism, post-geography, and post-geopolitics dominated intellectual society. In the current, second intellectual wave, realism, geography, and geopolitics are gaining importance. Intellectuals recognize the world isn’t flat and is unlikely to ever be so. They also acknowledge that the United States has neither the power nor the will to make it so and that its power is hampered by its geography of rugged land, vast oceans, and barren deserts. With this, the “Age of Geopolitics” is beginning again.
The war in Ukraine, which began in 2014 and escalated to a full-scale war in 2022, is empowering ‘geopolitical fatalism’ instead of human reason. Even prominent international political scientists such as Hans Morgenthau were reluctant to recognize geopolitics, calling it a pseudoscience due to its deterministic view that geography determines the fate of nations. Whether it is politics or geography, the idea that there is something like fate that cannot be overcome by human reason is rejected as unscientific, and as a trend that can be traced back to the Enlightenment. However, much like we cannot escape gravity by denying it, we need to “rationally” examine whether geography and politics are intertwined forces of nature that are just as powerful as gravity.
Halford Mackinder, considered the father of modern geopolitics, argued in the early 20th century for a map centered on the “Eurasian heartland” with the following propositions:
- Whoever controls Eastern Europe controls the heartland.
- Whoever controls the heartland controls the continent.
- Whoever controls the continent controls the world.
Not surprisingly, Russia’s obsession with Ukraine can only be understood as a continuation of Germany’s eastward march in World War I and II and the Soviet Union’s westward march in the early Cold War. The story doesn’t end there. China is also seeking to extend its transformation towards the once Soviet lands of Central Asia, its “heartland” countries. When you boil down the core projects of the Belt and Road to their essence, they are the westward march of modern China, echoing the grand arc of past Chinese attempts to interact with the ancient Eurasian steppe region or reach out to the west of Eurasia via the Silk Road.
Southwest of Russia, northwest of China, and east of Germany are all on the way to the heartland Mackinder anticipated, a world of Islam, a place where sectarianism and nationalism are on the rise, and where minerals, including oil, are concentrated. It is also a mountainous region disconnected from the open sea, even when there is an ocean. The sea connects, but the land disconnects. Mountain ranges, deserts, rivers, and forests are all barriers to connectivity. For transportation, land is only advantageous to the sea for moving infantry and soldiers on horseback; it has no advantage over the sea for transporting goods, raw materials, and information. As such, the region is home to stubborn, stoic, divisive, fierce, and brave mountain peoples, contrasting with the open and pluralistic maritime peoples, and fits the definition of geopolitics as “the study of the effects of geography on human divisions.”
Mackinder’s view of “geographical determinism” is worth noting because it comes at a time when the U.S. presence around the Black Sea, the Middle East, and Central Asia is diminishing. (Though a better term would be “geopolitical gravitationalism,” since he is not a determinist.)
The United States: the starting point for understanding geopolitics
The United States is the maritime power that created and sustains the current international order. In the days of imperialism, land was divided among more than 20 powers, large and small. But the great sea, the ocean, belongs to no one; in fact, it is essentially a flat continent connected by a single landmass, which is only at peace when one owner has it all. After hundreds of years of strife between ocean-going merchants, merchant-like pirates, pirate-like pirates, pirate-like soldiers, and soldier-like pirates, the Earth’s oceans finally belonged to one nation.
If Britain began the work of binding the oceans into one, the United States perfected it. The unclaimed ocean became a productive and peaceful platform for connecting land masses and feeding people on land, all under one authority. But the United States is a different kind of nation-state from Britain, one that is simultaneously inward-looking and outward-looking, positioned to stretch across both the Pacific and Atlantic oceans. The secret of the world order lies in the two contradictory pillars of America’s “involvement in the world” and “indifference to the world” outside its borders.
The United States can only maintain the world order as long as it continues to be influential enough to intervene in conflicts and decide the winner, but also indifferent enough to remain insulated from the world’s turbulence. The United States qualified for a perfect referee in the “world game,” where she could have a significant impact on the outcome, but was still indifferent to the outcome. However, as the United States found itself fluctuating between regional wins and losses, it jolted the American people out of their inattention to global affairs. For those who view the United States as a central player in the world order, the “age of geopolitics” is a garden without a gardener or with a gardener at work. Without a single power patrolling the world’s oceans, oceans will become a dark jungle of pirates and pirate-like soldiers once again.
The arrival of the “age of geopolitics” means saying goodbye to the rules of survival that we have become accustomed to during the holidays of history. Perhaps the most poignant of these rules has to do with interest rates. In the era of American order, the world was connected and the future was predictable, making it easier to send wealth into the future by leveraging horizontal connections. In other words, it was an era of structurally low interest rates. Moreover, the Wall Street crisis in 2008 and the global pandemic in 2020 made ultra-low interest rates a reality. In the mid-2010s, the U.S. Federal Reserve tried to push rates higher in response to public opinion that they were too low, but the side effects were so severe that it gave up. It’s worth noting that the Fed had already returned to a low rates regime before the pandemic. So it’s unclear how far the Fed can afford to push for further rate hikes beyond 2022.
In any case, the world is accustomed to structurally low interest rates. This is partly due to the U.S.’s preference for inflation over deflation. If the US is an empire, then it’s different from the old empires that lent money based on their production, because the US is a debtor empire powered by consumption. It was also the US’s geopolitical interests that allowed it to keep interest rates low. The US dollar is a national currency and a global medium of exchange. Geopolitical interests have kept the demand for the dollar stable beyond its economic value, so the U.S. need not sell bonds at a discount. Higher bond prices mean lower interest rates. But all imbalance has its bounds, especially when it’s a good one. Low interest rates are at risk of being adjusted at once through inflation. Moreover, in the age of geopolitics to come, the ties that bind the world will break. The “global ocean” that once moved resources and goods around the world will no longer function as a “seamless” platform, requiring the expenditure of energy and money to move goods. This means that the mechanisms for sending wealth into the future will be questioned across the board, and it means the end of the zero-interest rate policy (ZIRP).
The nonchalant engagement with the world through the US Dollar
In the era of US-led globalization, the dollar system has been the single most important institution upholding the belief that all nations operate under one set of rules. The dollar system refers to the international financial and trade order that uses the dollar as its reserve currency. The dollar epitomizes the United States’ characterization of itself as “involved in the world but indifferent to it.” The U.S. influences the global economy through the dollar, yet insulates itself from the rest of the world by utilizing the privilege of printing money. The dollar’s status was unique because the Swiss franc or Japanese yen, no matter how reliable, did not have the gravitas to withstand the weight of the world.
The rules of the dollar system are unlikely to change overnight, even if war breaks out in Europe’s backyard and China openly expresses its ambition to use the yuan as a means of payment. The dollar’s position as the world’s reserve asset remains overwhelming. Despite the cynicism of many heads of state toward the dollar, when the U.S. Federal Reserve raised interest rates in 2022, global economic participants, individuals and corporations alike, shifted their assets into dollars en masse. To avoid suffering from capital outflows, countries will have to follow the Fed’s lead and raise their own interest rates, even when the economy is not doing well. This is because the closer the crisis gets, the more participants in the global economy seek refuge in the safe haven of the dollar. The thirst for dollars tends to intensify the deeper the system goes into crisis.
However, the dollar order will change in the future. It’s not because of China’s ambition to make the yuan an international currency, nor because of Russia or Iran’s attempt to create a natural gas payment network that bypasses SWIFT. It’s not about the Euro, which was never elected by the people but assumed the sovereignty of individual countries, which elites believed they could run with impunity. Change is coming from within the United States.
The U.S. turns the game around
According to a survey by the Pew Research Center and the Council on Foreign Relations, the percentage of Americans who say they should care more about domestic issues than international ones is at a 50-year high. Fewer people say free trade helps the U.S. and more say it hurts it. This shift in perception has spilled over into politics, making it increasingly unlikely that politicians with a sense of mission to spread American values, especially liberalism, will be chosen by American voters and taxpayers. In the United States, the political center of gravity is shifting towards the need to provide stable jobs for the vast majority of hardworking, but not particularly talented or fortunate, ordinary people, and the argument that doing so requires staying out of world affairs.
For a country’s currency to be a reserve currency, its exchange rate with foreign currencies must have a small impact on the domestic economy and the U.S. has a large economy and a small share of imports and exports (trade as a percentage of GDP is in the low 20s), so the dollar fulfills this requirement the most. U.S. politics is a bit peculiar, similar to the dollar, because foreign policy is not a big part of domestic politics and the U.S. is not interested in international changes. To the extent that they design and support the world order, they are able to live with a certain degree of indifference to it, and this indifference is due to their lack of exposure to it. Sometimes, however, international politics becomes an issue in domestic politics, usually in a negative way. The Korean War, the Vietnam War, and the War on Terror all became domestic issues, and they divided the country. For the foreseeable future, international politics will continue to be an important variable in American domestic politics, especially when it comes to China.
When people look back on past events, they tend to overlook the course of events. The U.S. victory in the Cold War was not a foregone conclusion. The United States never had the superiority in the competition with the Soviet Union and other communist blocs. Despite its overwhelming power at the time, it barely managed to avoid losing the Korean War, which it entered only to prevent another war in Europe. The outcome of the Vietnam War was even more devastating, as its victory was by an impoverished Communist China. American society was deeply divided during the Vietnam War, and as it became clear that the United States was bogged down, the world questioned its leadership, especially in the eyes of allies like Western Europe and Japan, which had come to rely on the United States. The idea of the Middle East and Southeast Asia being overrun by nationalist communist powers that admired the Soviet Union and China was not just a possibility, but an imminent reality.
But the United States changed the game. In other words, it went from playing chess with a king or queen to suddenly playing Go. A game in which you can win by surrounding your opponent in a larger area, even if you lose important pieces. While the enemy was distracted by the abandoned house, the U.S. built a bigger house and won the game. The Cold War was narrowly won by changing the rules of the game with flexible strategies at crucial moments, and the détente with China was the game-changer the United States needed to regain the initiative.
This is a tangential story, but the bottom line is that when it comes to Bitcoin, the U.S. will turn the game on its head again. This is the true power of the United States. Despite its size, the U.S. is adaptable and strategically flexible. When it comes to decisive moments, it shows a strong determination to regain the initiative, even if it means changing the game, and above all, it shows the imagination to push the envelope.
The alliance with China was led by a small group of American elites armed with realism. The American public was uncomfortable with the idea of getting too close to a mysterious country, a country with a poor record of human rights and democracy by U.S. standards. However, the U.S. continued to pursue close ties with China as a strategic maneuver in pursuit of realistic national interests, even though it went against public expectations. Of course, due to the many shortcomings of the engagement, public dissatisfaction remained at the rhetorical level and remained far from organized. And yet, China has emerged as a subversive force in the U.S.-led world order.
China’s geopolitical behavior has gone far beyond claiming to be the leader of the forces that oppose the U.S.-centered international order and has challenged the entire Western value system. China’s behavior is often seen as undermining the premises of the Treaty of Westphalia, which has been a guiding principle of international order since the 17th century. Whether this is intentional is unclear, but it poses a significant threat. The most stark example of this is COVID-19. Beyond the economic damage and restrictions on personal freedoms, it has wiped out people around the world, and there has been no investigation into the cause, let alone an apology. Seldom has an event demonstrated more dramatically that a China-led world will not be the same as before. Moreover, President Xi Jinping has “regressed” China beyond the one-party dictatorship of the Communist Party and into a path of one-man rule.
Even before COVID-19, starting with the South China Sea issue, China has openly stated that it no longer wants to walk around eggshells in the international community. Just when even the realist elites in the United States were becoming increasingly uncomfortable with the reality of China, the pandemic hit. If anyone could have orchestrated it, the timing couldn’t have been better. The U.S.-China leadership struggle no longer needs any masks.
Bitcoin: a currency free from geopolitical interests
The international monetary system is difficult to explain in isolation from geopolitics. It is itself a product of the First and Second World Wars, and the postwar US-led international system is based on the cooperation of nation-states through international organizations like the UN, the Bretton Woods system, the supremacy of the dollar, the principle of free trade, and freedom of navigation. For economists, money is a neutral, externally given, state-governed entity that cannot be fungible. But the international monetary system on a global scale is neither of these things, and it defies the imagination of economists. There is currently no world government that can print the world’s money. Moreover, can a group of countries with the power to change the rules come together to create an unalterable order? Can we imagine a world where the United States or China bind themselves to a balance of “Special Drawing Rights” (discussed in Chapter 2)? The answer is no, there is no world nation that would create an international currency, and there never has been and never will be a nation in observable history that would issue the “fiat” currency that people use in their daily lives unless you want to invoke conspiracy theories. In other words, the international monetary system is a precarious order. It is not neutral, and there is no world government that will create or govern it.
It is an order subject to change and improvisation, based on haphazard milestones set by countries trying to maintain a balance of power. Global trade is the most sensitive sensor of shifts in geopolitical power and the ultimate outcome of geopolitical games, as it is the stage where the countries involved in geopolitical games try to increase their power.
This is why Bitcoin’s neutrality is atypical. Because it is not issued by a state, its unalterable nature makes it an acceptable compromise in relations between states without rules. While Bitcoin may not be able to extend the “holidays of history,” it has the potential to become a “demilitarized zone” where micro-individuals can take a breather from geopolitical battles.
Hope you are enjoying this series. I’m not a professional translator, so there might be some errors in the translation. If you have any questions or suggestions, please leave a comment below. A great thank you to Amy Jun for proofreading this article.