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Opinion | How America’s national debt has become the world’s liability
- While the risk of America’s debt is shared by global lenders and investors, US leverage makes the burden far from fair
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To paraphrase prose written by American poet Carl Sandburg, money is power, freedom, a cushion and the root of all evil. Since the pseudonymous Satoshi Nakamoto created bitcoin cryptocurrency in 2009, techies today can create money, somewhat eroding the legal power of central banks to create fiat money.
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Few doubt that the mighty American empire is founded on the power of the United States dollar. Not only is the US able to create that currency, it has the power to sanction anyone using it, without much accountability.
Money is a tool of power, and creating it requires a lot of energy, which is why mining cryptocurrency is highly energy-intensive. The estimated power used to produce cyber-assets ranges from 0.4 per cent to 0.9 per cent of the electricity generated annually worldwide. The market capitalisation of cryptocurrency was valued at around US2.4 trillion as of March.
Put in perspective, the size of the global financial system per the Financial Stability Board at the end of 2022 was US$461 trillion, more than four times world gross domestic product (GDP). Banks accounted for 39.7 per cent of total financial assets, nonbank financial intermediaries for 47.2 per cent, central banks for 8.5 per cent and public financial institutions 4.6 per cent.
Monetary expansion can occur through governments running fiscal deficits, banks expanding credit or central banks buying government securities in a process called quantitative easing. Financial derivatives are innovative expansion through leverage of underlying assets through new types of contracts.
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