Former New York Fed President Says Strategic Bitcoin Reserve Would Drive Up Inflation and Government Debt

A former Fed president is warning that the proposed Bitcoin (BTC) strategic reserve concept won’t yield any positive benefits for the American people.

Bill Dudley, former president of the Federal Reserve Bank of New York and ex-vice chair of the Federal Open Market Committee (FOMC), says in a new opinion piece on Bloomberg that the incoming Trump administration’s proposal for a BTC-backed reserve has zero positives.

Dudley says the main effect of a Bitcoin reserve would be higher inflation and more national debt.

“But what benefit does establishing a Bitcoin reserve have for the government or those who do not hold Bitcoin?

None.

There is no exit strategy, so its purpose is to drive up inflation rather than create value for the government – the government would be forced to hold a volatile token that generates no revenue. To provide the funds for purchases, the Treasury must either borrow (thus increasing debt service costs) or the Federal Reserve must create money (thus exacerbating inflation).

The latter is almost indistinguishable from the Federal Reserve monetizing US government debt (similarly, directing the Federal Reserve to utilize the government’s gold reserves based on congressional legislative proposals would also be the case).”

The former Fed boss says that if the Trump administration really wants to support Bitcoin and the crypto industry, it should establish laws and regulations that “allow it to develop and operate safely.”

Specifically, Dudley says that the government should work to define whether tokens are currency or securities, and establish rules to “protect consumers and prohibit their use for activities such as financing terrorism or selling illegal drugs.”

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