Self-proclaimed “Bitcoin Senator” Cynthia Lummis (R-WY) Declared laws A government manifesto released on Saturday aims to create a government bitcoin reserve of the 1 million BTC over the next five years. But is this possible?
According to one expert, the actual plan for doing so is somewhat different from what Lummis suggested on the Bitcoin 2024 forum, where he said the coins would be paid for from the “excess reserves” of the country’s twelve Federal Reserve Banks.
“This plan is far less ambitious than that,” said George Selgin, director emeritus of the Cato Institute’s Center for Monetary and Financial Alternatives. decrypt,
While the details of Lummis’ plan have not yet been released, based on his conversations with Lummis’ office, Selgin said the legislation only “indirectly” involves the Fed and has “nothing to do with bank reserves.”
“Instead, it’s essentially a plan for the U.S. Treasury to purchase 1 million bitcoin, which is equivalent to about $64 billion at today’s prices,” he explained.
Selgin said part of this purchase would be financed by revaluing the Treasury’s gold held at Fort Knox, which should be worth $353 billion at today’s market value. That’s 60 times the current book value of gold, which he described as an “accounting fiction” left over from the old days. Bretton Woods This system began several decades ago, when the dollar was much more valuable.
Selgin explained that the revaluation process will involve the Treasury issuing new gold certificates to the Federal Reserve that match the actual value of the gold it holds. Next, the Fed will deposit an additional $347 billion into the Treasury General Account (TGA), matching the previous increase in liabilities from the gold certificates.
Thus, the Treasury will have more than enough funds to acquire 1 million BTC – at least at the current market price.
“This alternative plan is certainly viable,” Selgin said. “To that extent, I’m not as skeptical about it as I was about what I was thinking.”
However, Selgin still has some concerns about the proposal.
He said the establishment of such reserves threatens the stability of commercial banks across the country. Specifically, every new dollar that comes out of the TGA goes into the reserves of commercial banks, where they are guaranteed to receive interest from the Federal Reserve.
“Just as ordinary people keep some money ‘in the bank,’ banks do the same thing; they keep it in one of the 12 banks of the Federal Reserve System,” the former Cato director explained.
In a high interest rate environment, banks are incentivized to keep their cash in reserve accounts, where they earn an attractive yield of 5.4 percent today. To pay that yield to its constituent banks, the Fed can typically rely on dollar-denominated yield-bearing instruments such as U.S. Treasury bills, which earn roughly the same annual payment.
However, under Lummis’ plan, the Federal Reserve would not own Treasury bills to support the increase in commercial bank reserves. It would only own gold certificates from the U.S. Treasury, which pay no interest.
“What little independence the Fed enjoys from the executive branch and Congress depends primarily on its long-term ability to generate enough revenue to meet all of its needs,” he said. noted on Twitter.
Overall, Selgin’s biggest skepticism centers on why the Treasury should hold any gold or BTC in the first place. Instead of hodling, he suggested the Treasury sell the gold it holds to pay down its debts directly, or fund other endeavors.
“Is there no other purpose that would benefit the public as much as having $64 billion in bitcoin reserves?” he asked. “About such questions, I’m afraid I remain as skeptical as ever.”
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