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The stories that matter on money and politics in the race for the White House
Donald Trump’s plans to create a bitcoin strategic reserve pumped up the crowds in Nashville this weekend — and lifted the cryptocurrency too. Still missing was any logic to the presidential hopeful’s verbiage.
Cash and gold reserves typically provide stability for countries with non-US dollar currencies. When financial or other crises hit, it helps to have a store of emergency dollars to cover (US dollar denominated) import bills or shore up the home currency. That need hardly arises when you are the reserve currency and can simply print more.
In any case, being a force for stability is a tough ask for a volatile asset. Emerging markets would have struggled to weather bank runs if they had stacked their FX reserves with their neighbour’s equally weak currencies — Mexican pesos for Argentina, say.
Reserves also need to be liquid. Even assuming a future Trump administration did away with the red tape that means seized bitcoins are held in Washington, crypto markets are neither deep nor liquid.
All the other plumbing that makes buying and selling government debt a breeze, regulation, infrastructure, settlement and trading itself, are absent or at the very early stages when it comes to bitcoin. Ditto transparency and efficiency. There are no rating agencies or instruments like credit default swaps to help gauge counterparty risk.
For sure, the amounts envisaged are small. The US holds 213,000 bitcoins, or 1 per cent of those in circulation, according to Bitcoin Treasuries which compiles data on corporate and government holdings. Those existing holdings — worth about $15bn at current prices — are the result of seizures from illegal operations, notably online dark web Silk Road. Even lifting the level to Senator Cynthia Lummis’s proposed 5 per cent would still be a fraction of what the country’s gold reserves are worth.
What would be the advantage? The stated aim, per Lummis who is behind the proposal, is to temper inflation and “secure our economic future”. Governments and central banks have many other levers they can pull, fiscal and monetary, to alleviate inflationary pressure.
Raising the spectre of an arms race with China, as Trump did, misses the point. True, China’s holdings of Bitcoin are second only to the US. But Beijing’s real crypto swagger is likely to come from its own crypto coin (even if usage of this central bank digital currency has so far been decidedly unimpressive.)
It remains to be seen if Trump’s courting of the crypto crowd will translate into votes. It is a pretty safe bet that it will not translate into a workable policy.
