tldr: Gold doesn't matter to international trade, nor currency exchange rate, thus holding BTC won't help.
I don't find this article to be a compelling argument. Its taking a rather narrow view. Two main rebuttals:
(a) The functional purpose of both gold and bitcoin to todays central banks are to shore up the balance sheet. By having non-debt assets, this provides a scalable entry on the balance sheet which collateralize's the existing debt. Moreover as money printing increases, so will the value of these assets, thus the "scalability" feature. Its a one-time expense that gives you "balance sheet insurance" going forward (ie. if your debt increases by 30%, in theory this could be offset by a 30% rise in these non-debt assets).
(b) Secondly, bitcoin (as a network) is the most feasible competitor to the dollar reserve status. Sure China would like that role for the renminbi, but the global politics of the world would probably prefer to settle on a neutral 3rd party solution like bitcoin. Thus, by acquiring a 2, 4, or 5% ownership of that network, the US essentially "buys in" to it and it acts as another insurance hedge
Note: This article seems fairly standard fare for CATO. They are full of pretty unimpressive thinkers who lay heavy on policy wonkism but either by design or by lack of intellect routinely miss the forest for the trees.
But you're conflating monetary and fiscal reserves. Fiscal reserves is money used to pay for government spending, and typical governments have none or little fiscal reserves. The US has none. Monetary reserves are used to stabilize exchange rates, as the article explains. Is the goal to stabilize the USD/BTC exchange rate? Then the US should buy when the price dips, and sell when it increases rapidly.
Bitcoin doesn't make sense as a reserve currency, because you can just use Bitcoin directly, as a currency. No need for a central bank to hold it in reserves and issue fiat on top of it.
I have not said nor implied any of those things. Having assets (collateral) is the basis for lending. This is not some novel concept, and quite simply the more assets an entity has, the more it can borrow. One issue that all central banks / national treasuries currently have is (besides gold), they have no real non-debt assets. Golds problem is that congress has mandated it be valued at $42.2222 per ounce which limits its usefulness as a collateral asset -- a limitation which bitcoin doesn't have. Bitcoin can scale as printing increases.
Even though there are no longer "reserve requirements" needed to issue currency against - the market itself still judges credit worthiness by taking into account the balance sheet of the borrower / lender.
People lend the US government dollars because they believe they will get it back through taxes, not because the US government has assets. Will these entities still lend out dollars if they see these dollars being used in a speculative attack against the dollar, devaluing the claims of US treasuries?
If you zoom out you see that the whole thing is pretty insane. Both the "assets" and the "liabilities" are the same thing. They are both the same debt. (eg. US Treasuries and Mortgages are both debts to be paid back in Federal Reserve Notes). Its a crazy balance sheet that only crack smokers / crooks / thieves would sign off on. The only assets are the Gold.
Thus from a valuation standpoint, the entirety of the balance sheet is propped up by its incredibly small true assets.
The US Treasury Balance sheet is much much much worse given its pending liabilities of ~100-200T in pledged entitlement payments.
Yours and CATOs arguments basically center around: None of that matters because none of it has mattered in the past. However that conveniently ignores the elephant in the room.
Point being, the only way to bring sanity back to these respective entities Balance Sheets is to increase the assets and decrease liabilities.
If the US Treasury were to acquire say 2M Bitcoin which in the future becomes worth $10M each. This provides a $20T boost to balance sheet to improve its credit worthiness, and thus acts as balance sheet insurance. This is an asymmetrical payoff compared to the current cost.
Print US dollars (or would you prefer heavy taxation?)
Buy Bitcoin
Devalue the US dollar, wait a bit for Bitcoin to go up
Repay the dollars with Bitcoin
-> The US dollar is now worth significantly more, there's been years of heavy inflation (or taxation), and the US government will still have to borrow more than it earns. With or without Bitcoin, the above plan is akin to declaring bankruptcy, but with one extra Bitcoin step.
That's not the point of holding an ever inflating asset on your balance sheet. The point is to allow it to inflate forever as your debt does. Its a collateral item.
US government will still have to borrow more than it earns. With or without Bitcoin, the above plan is akin to declaring bankruptcy, but with one extra Bitcoin step.
This is why I said only solution is to simultaneously reduce liabilities and increase assets.
Whereas your plan is this:
Yes the balance sheet is a disaster but its always been, so lets just keep it that way.
Note: This article seems fairly standard fare for CATO. They are full of pretty unimpressive thinkers who lay heavy on policy wonkism but either by design or by lack of intellect routinely miss the forest for the trees.
Fucking YEEES. That's been my take a lot.
Then again, they are a political think tank, so a little bit like accusing, say, a labor union for putting out pro-worker reports. (Yeah, it's kinda the point)
Dear Bitcoiners,
Trump won't pump your bags, the state isn't going to make you rich. Bitcoin is the same as it has always been and we are going to have to work and get our hands dirty if we want to make it happen.
Yours, Leo
nice historical rundown by our beloved Mr. Selgin... but it's two-thirds in before he even mentions a Strategic Bitcoin Reserve.
Uh-hu...
...and then never really talks about it. Don't bother reading, here's the Tl;dr --
And—let’s be honest—although some Bitcoin fans may sincerely believe that a Strategic Bitcoin Reserve will strengthen the US dollar, many more favor it despite not caring a fig about the dollar’s future because they expect it to make them richer, and don’t mind if it does so at others’ expense.
this is at least correct:
If the US government wants to avoid losing money on its foreign exchange holdings, the sensible way for it to do so is by disposing of those holdings, gradually or otherwise, not by accumulating some other risky asset.
Concerning helping precious metal markets: here, for once, is something a gold stockpile does. But then the question becomes, what reason is there for the government to prop up the gold market, other than to enrich gold miners and investors at others’ expense?
They're a relic from a outdated monetary past. Today's monetary arrangements don't need them.
Anyway, Selgin's contribution -- as so often in recent years -- is verbose, sour, and he's def suffering from bitcoin derangement syndrome. Can't make himself say anything positive about BTC.
yeah, that's what this is about. proposals for a "strategic bitcoin reserve" come out of a desire to burn down the dollar. It's not a strategy meant to serve the US government, citizens, country or the dollar
Assets
Liabilities
Equity