A recent UnHerd article warns of a “crypto time bomb,” suggesting that stablecoins could become a geopolitical tool to undermine the U.S. economy by redirecting foreign dollar reserves into U.S. Treasuries. The core assumption is that countries like Japan are sitting on idle piles of dollars, waiting for a stablecoin intermediary to put them to use.
This misreads how international finance operates. Like other major dollar holders, Japan doesn’t need help managing reserves. Dollars earned from trade surpluses are immediately reinvested, often into U.S. Treasuries. There are no dormant pools of dollars needing a middleman. The real action lies not in crypto or stablecoins but in how governments use their currency-issuing powers to actively manage currencies and reserves.
The Real Mechanism: Sovereign Wealth Funds
The real geopolitical financial weapon is the sovereign wealth fund (SWF), not digital tokens. Governments have long used SWFs and their variations to manage foreign exchange reserves, intervene in markets, and subtly manipulate currency values.
A US SWF would probably begin with congressional appropriation, dressed up as being “funded” by tariffs or windfall revenues. In practice, it is just a balance sheet operation. Congress would appropriate the funds, which appear as a credit in the SWF’s central bank account. The SWF can then operate in global markets with full state backing.
To suppress the dollar, the SWF can offer dollars for sale on the foreign exchange markets at more attractive terms than any competitor. If USD/JPY trades at 150, the SWF might offer dollars at 145, undercutting the market. Buyers will seize that deal, draining dollars from the SWF in exchange for yen.
This continuous buying creates demand for the yen and steadily nudges the exchange rate in Japan’s favour. It is not speculative but a deliberate, structured strategy designed to shift trade competitiveness. What happens to the yen? The SWF reinvests it—buying Japanese government bonds, equities, or other assets.
This operation is identical to the government purchasing Japanese assets directly. The SWF serves as a veil—making it appear that the nation is engaged in prudent investment rather than exchange rate manipulation. It is a form of financial statecraft that net exporting nations have mastered: accumulating foreign assets to suppress their own currency and bolster exports.
Providing a Cash-Out for Crypto and Gold Holders
There is another, less discussed function of sovereign wealth funds: providing an exit ramp for holders of speculative assets like cryptocurrencies or even gold. Any proposal for a “crypto reserve” or a “gold reserve” should be read with this in mind.
An SWF with deep pockets and central bank backing can act as an ever-present buyer, offering actual state money for digital or physical assets even when private markets dry up. Large crypto holders—or gold speculators—can convert their holdings into real, spendable currency. This isn’t about securing the future or hedging risk—it’s about guaranteeing liquidity to powerful financial players.
Just as gold reserves historically provided a means for private holders to liquidate their assets at a favourable price, a modern “crypto reserve” would serve the same function. It legitimises speculative wealth and absorbs it into the state system—quietly socialising the risks while privatising the gains.
The Oldest Trick in the Book
For decades, countries like China, Singapore, Korea, and Norway have used variations of this approach. By parking export earnings into U.S. Treasuries or recycling them through sovereign funds, they keep their currencies undervalued and exports competitive. The neoliberal obsession with market neutrality blinds the U.S. and others to this tactic, making any direct counteraction politically and ideologically difficult.
The brilliance of the SWF mechanism is that it looks innocuous—an “investment fund” acting prudently on behalf of a nation. Yet its real purpose is mercantilist: quietly draining foreign exchange markets to tilt the playing field.
Conclusion
The stablecoin scenario is a distraction. The true instrument of monetary influence is the power of the currency issuer, deployed with precision to manage currencies and secure national advantage. Dressing it up in neoliberal legitimacy doesn’t change that reality.
Behind every new proposal for a “crypto reserve” may lie an even older motive: giving the powerful a way to turn speculative gains into real money backed by the state.
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