‘Hardly money’: Former NY Fed chief blasts Trump’s Bitcoin reserve

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As a researcher with extensive experience in financial regulation and central banking, I find myself in agreement with Bill Dudley’s perspective on Bitcoin. His insights, honed over decades at the helm of the New York Fed, provide a valuable lens through which to view the complexities and challenges of digital currencies like Bitcoin.

Bill Dudley, ex-leader of the Federal Reserve Bank of New York, advised against keeping Bitcoin as a reserve asset and emphasized the importance of regulatory oversight.

During Donald Trump’s presidential campaign, Dudley voiced his criticism towards a suggested federal Bitcoin (BTC) reserve. In an opinion piece for Bloomberg, he expressed his viewpoint that this proposal would not bring advantage to the majority of American citizens and might potentially disrupt the economy’s stability.

Dudley recognized the allure of Bitcoin as a mobile and decentralized investment option with some potential diversification advantages for investors. Yet, he underscored its volatility, slow transaction rates, and restricted real-world usefulness as substantial disadvantages. In his opinion, “Bitcoin falls short of meeting the criteria for money.” He pointed out that Bitcoin’s limited acceptance as a form of payment and vulnerability to loss render it an inappropriate option for a national currency reserve.

The op-ed also outlined financial concerns. Establishing a Bitcoin reserve would require substantial government borrowing or increased money printing by the Federal Reserve, Dudley argued, potentially driving inflation and raising debt-servicing costs. 

He warned that the reserve could primarily inflate Bitcoin prices, benefiting existing holders while offering little value to the broader public.

Bitcoin’s unsustainable price surge

Dudley pointed out a current legislative suggestion that requires the government to buy a total of one million Bitcoins within a span of five years. He characterized this idea as an unstable plan for inflating prices, lacking a defined way out, and leaving the government with unpredictable assets that don’t produce any income.

Instead of persisting with these policies, Dudley advised the Trump administration to prioritize creating all-encompassing regulations for the cryptocurrency sector. He proposed steps such as guaranteeing that stablecoins are fully collateralized by federal resources, clarifying the legal nature of digital tokens, and instituting guidelines to safeguard consumers and suppress illegal activities.

In Dudley’s view, digital currencies may enhance our financial infrastructure, however, without robust safeguards, issues like fraud and misuse could continue unabated.

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2024-12-06 19:26