Trump's proposal of a Federal Reserve for Bitcoin is puzzling but not absurd
livemint.comWhich financial assets a central bank should buy and sell is hardly a novel question. Historically, the US Federal Reserve has focused on shorter-term Treasury securities, but quantitative easing had the Fed buying mortgage securities and quality commercial paper in vast quantities. Central banks often hold gold and foreign currencies.
Separately, the US government maintains reserves of critical commodities, such as its Strategic Petroleum Reserve. The Treasury also holds forex reserves and SDRs, and many foreign governments go further and have extensive sovereign wealth funds that include equities, natural resources (Canada has its own strategic reserve for maple syrup) and other assets. Enter Bitcoin.
Senator Cynthia Lummis of Wyoming has introduced a bill to have the Treasury create a $67 billion stockpile of the cryptocurrency and Republican presidential candidate Donald Trump supports the idea, saying it would be “a permanent national asset to benefit all Americans." The bill may not be a serious piece of legislation—it’s unlikely to pass—but it raises a big question: Under what circumstances can governmental purchases of cryptocurrency be justified? It is not a hypothetical. Jersey City’s pension fund plans to invest in Bitcoin, as Wisconsin already has. It may well be that these plans are pandering to crypto holders and putting taxpayers’ money at unacceptable risk.
Yet, if respectable private entities are investing in Bitcoin, as indeed is the case with current financial ETFs, the “separation of state and Bitcoin" is unlikely to last forever. To see one version of the case for government purchases of Bitcoin, consider Argentina, where past hyperinflation has made both dollars and Bitcoin very popular. Inflation
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