The US Dollar Isn’t Backed By The US Military

We often hear how “the USD is backed by the full strength and might of the US military”, but this is misleading, and glosses over the coercion at the center of the argument. As this fallacy extends into crypto (”bitcoin is backed by energy”), it’s a good time to be careful with wording.

“The USD is backed by the full strength and might of the US military.”

This line is repeated frequently in debates about Bitcoin or ‘sound’ money, so I want to take a moment to break down this carefully one-sided choice of words.

What is “Backing”?

In its simplest and most literal form, backing is something for which you can redeem a note.

With gold-backed notes, if you add more backing, the unit of account becomes more valuable as you can exchange it for its backing, and if you remove some of the gold backing each note, it decreases.

However, the gold itself is not backed by anything. Sure, there is demand, so you can exchange it, but that goes for just about everything. This goes for bitcoin as well — sorry Saylor, but bitcoin is not backed by pure energy, for you cannot redeem it for its backing.

The Dollar

In this sense, the US dollar is not “backed” by anything. You cannot redeem it for any fixed amount of goods or services.

Some say that it is not backed by goods or services, but by power! However, this is simply not the case. If military spending suddenly 10x’d, and thus increased spending proportionally, the USD would not suddenly be worth 10x (and would potentially actually lose value due to expected dilution). There is no direct relationship as alluded to with the word “backing”.

Prerequisite ≠ Backing

Here we have a case of a leading US military as a prerequisite for the dollar, but not ‘backing’. The US military may be necessary in order for the dollar to be a contender for a global reserve currency, but that doesn’t imply that a strong military ensures the value of the dollar as ‘backing’ would.

So in the literal sense, there is no backing, and the term is misleading. But what about the intangible “backing” by threat of military use against competing currencies?

Beware Petrodollar Challengers

Perhaps the most common argument made about the military ‘backing’ of the dollar is the fate of perceived petrodollar challengers.

The idea is that if another country attempts to price its resources (i.e. oil) in a non-dollar currency, the US will intervene to decapitate the movement (or the leader).

While I have seen some evidence for and against this in context of the Middle East, the perceived threat or use of force is at the core of this argument.

Simply saying the USD here is “backed by the military” completely glosses over the liberal use of coercion on the international stage.

It might be more accurate to say “the acceptance of the dollar is enforced by the aggression of the US and its military”, but the regime does not want to draw attention to the unsolicited (and therefore unethical) use of force.

Other Interpretations

You may be thinking that there are other ways to interpret “backed by the military”, as in required under threat of violence to pay taxes. Taxes drive up demand for dollars by requiring dollar-denominated payments and thus ensuring accounting must be done in dollars.

But again, we’re leaving out the key action here which is the use of that military on its own citizens who refuse to fund the state.

Let’s Be More Honest

In summary, the words “backed by” are less than accurate descriptively and carefully leave out the implicit threat of unsolicited aggression.

As such, let’s stop using the word “backed by” and get back to talking about the unethical use of force and threat that enable the destructive fiat system.