Cynthia Lummis, the self-proclaimed “Bitcoin senator” from Wyoming, has introduced legislation to create a government Bitcoin reserve of 1 million BTC within the next five years. However, there is some skepticism about whether this plan is feasible. According to George Selgin, director emeritus at the Center for Monetary & Financial Alternatives at the Cato Institute, the actual plan is more modest than Lummis suggested. The plan involves the U.S. Treasury purchasing 1 million Bitcoin, or about $64 billion worth at current prices, not acquiring the coins through excess reserves from the Federal Reserve banks.
Selgin explained that part of the funding for this purchase would come from revaluing the Treasury’s gold held in Fort Knox, which is currently valued at around $353 billion. By issuing new gold certificates to the Federal Reserve that match the real value of the gold on hand, the Treasury would be able to credit the Treasury General Account with the necessary funds to acquire the 1 million BTC. While Selgin believes this alternative plan is feasible, he has expressed concerns about the implications of establishing such a large reserve.
One of Selgin’s main concerns is the impact on commercial bank stability across the nation. When new dollars leave the Treasury General Account, they end up in commercial bank reserves, where they earn interest from the Federal Reserve. However, under Lummis’ plan, the Federal Reserve would not have Treasury bills to back the increase in reserves, as it would only have gold certificates from the Treasury, which do not bear interest. This raises questions about the Fed’s ability to generate sufficient revenue to cover all its needs without support from Congress or the executive branch.
Selgin also questions why the Treasury should hold gold or Bitcoin in the first place, suggesting that it would be more beneficial to sell the gold to pay down debt or fund other endeavors. He wonders if there are no other purposes that would benefit the public more than having a $64 billion Bitcoin stockpile. While he acknowledges the feasibility of the plan, Selgin remains skeptical about the overall benefits and implications of such a large government reserve.
In conclusion, Cynthia Lummis’ plan to build a government Bitcoin reserve of 1 million BTC within the next five years raises questions about its feasibility and potential impact on the financial system. While George Selgin believes the plan is achievable through revaluing the Treasury’s gold, he raises concerns about the implications for commercial bank stability and the Federal Reserve’s ability to generate revenue. He questions the necessity of holding such a large Bitcoin reserve and suggests alternative uses for the funds. As the debate over the creation of a government Bitcoin reserve continues, it remains to be seen whether Lummis’ ambitious plan will come to fruition.
