Bitcoin emerges as a powerful hedge against threats to Federal Reserve independence as political pressures intensify and federal debt reaches historic levels.
In The Case for Bitcoin as a Reserve Asset, I previously discussed bitcoin’s role as an emerging reserve asset, providing some protection against geopolitical risks, sanctions, and bank failures. In this blog post, I discuss whether bitcoin might provide an additional type of protection—against a loss of Federal Reserve independence.
Unlike the US dollar—whose supply expands and contracts as the Federal Reserve attempts to stabilize inflation—Bitcoin’s total quantity in circulation is capped, with prices permitted to fluctuate freely. Because the two assets represent completely different monetary philosophies, a loss of confidence in one system could plausibly have spillover effects on the value of the alternative system. This blog tests that hypothesis. First, I discuss the history of Federal Reserve independence; then I summarize recent debates about curtailing that independence; and lastly I explain my empirical findings regarding the relationship of bitcoin to Fed independence.
Congress created the Federal Reserve System in 1913 to promote financial stability after a series of banking panics in the late 1800s and early 1900s. The Federal Reserve System is comprised of regional Reserve Banks and a Board in Washington, DC. The Federal Reserve Board Governors sit on the interest rate-setting Federal Open Market Committee (FOMC) along with an alternating subset of the regional Reserve Bank presidents. The Governors are appointed by the President, confirmed by the Senate, serve staggered 14-year terms, and may only be fired by the President “for cause”—all institutional features designed to insulate the Federal Reserve’s monetary policy decision-making from political interference. The President also appoints one of the Governors to be Chairman of the Board for a 4-year term.
...read more at btcpolicy.org
pull down to refresh
related posts
That’s a very strange form of independence
It’s a disguised independence, and based on the article, it could easily stop being disguised, meaning the end of that independence.
I’m skeptical of how meaningful that distinction is. There’s decent evidence that Fed decisions are already politically motivated.
Yeah, that’s true. The article says it might get worse.
Haha, yeah, it might. Things can’t always get better but they can always get worse.
Great article! Monetary policy is the 'easy button' for politicians because fiscal policy (balancing a budget) is too slow and unpopular. It is a big reason the Fed’s is only independent on paper.
The Polymarkets correlation makes sense given that there was a push to lower interest rates to keep debt payments low and inject more money into the economy, further diluting the dollar.