Bill Dudley, the former chairman of the New York Federal Reserve, has expressed serious concerns about the potential inclusion of Bitcoin in the US national reserves, as reported by Bloomberg. Dudley warns that this move could compromise the longstanding status of the dollar as the world’s reserve currency and harm the interests of most Americans.
Dudley’s criticism comes at a time when discussions about Bitcoin’s role in national financial policies are increasing, particularly among legislators and cryptocurrency supporters.
The Risks and Macroeconomic Impact of Bitcoin Reserves
Dudley’s argument highlights the inherent volatility and speculative nature of Bitcoin. Unlike conventional assets such as bonds or gold, Bitcoin is a risky investment for a national reserve because it does not generate income and experiences extreme price fluctuations.
Furthermore, Dudley points out that significant government acquisitions of Bitcoin could artificially drive up its value, thereby disproportionately benefiting current owners and providing few advantages to the general society. He argues that such actions could do more harm than good by exacerbating economic inequality and fostering mistrust in government programs.
Dudley also emphasizes the potential macroeconomic effects of building a substantial Bitcoin reserve. Financing such an endeavor could further burden the already heavy national debt and create inflationary pressures, either through increased borrowing or money creation.
According to Dudley, these challenges outweigh any theoretical benefits of using Bitcoin as part of a reserve diversification plan. Instead, he advocates for a more targeted legislative approach to regulate the possibilities and risks presented by the Bitcoin market. Dudley believes that such measures will preserve economic stability and better serve the needs of the American people.
Despite Dudley’s concerns, some legislators are taking a different approach. Senator Cynthia Lummis has proposed the establishment of a US Bitcoin reserve, arguing that it would help reduce national debt and position the government favorably in the evolving financial landscape.
Lummis’ plan involves selling a portion of the government’s gold reserves to fund the purchase of up to one million Bitcoin over a five-year period. Supporters of such initiatives argue that the increased acceptance of Bitcoin and its deflationary nature could serve as a hedge against inflation and global economic changes.
As part of a diversification strategy to combat inflation, Pennsylvania has recently proposed allocating 10% of its state treasury funds to Bitcoin, according to CNF.