Federal Reserve Chairman Powell Rejects Trump's Bitcoin Reserve Plan: The Fed Lacks Authority to Hold Bitcoin

Federal Reserve Chairman Powell Rejects Trump's Bitcoin Reserve Plan: The Fed Lacks Authority to Hold BitcoinFederal Reserve Chairman Jerome Powell recently stated unequivocally that the Fed has no intention of participating in any government-led "Bitcoin hoarding" scheme, citing the central bank's lack of authority to hold Bitcoin. This statement directly addresses former President Donald Trump's previous proposal to establish a "strategic Bitcoin reserve" upon his return to office

Federal Reserve Chairman Powell Rejects Trump's Bitcoin Reserve Plan: The Fed Lacks Authority to Hold Bitcoin

Federal Reserve Chairman Jerome Powell recently stated unequivocally that the Fed has no intention of participating in any government-led "Bitcoin hoarding" scheme, citing the central bank's lack of authority to hold Bitcoin. This statement directly addresses former President Donald Trump's previous proposal to establish a "strategic Bitcoin reserve" upon his return to office.

Trump's proposal lacked specifics, merely suggesting an initial reserve could utilize approximately 200,000 Bitcoin seized from criminals, reportedly worth around $21 billion at current market prices. This plan sparked considerable debate within the cryptocurrency community. Trump's publicly expressed support for the crypto industry, coupled with the prospect of his return to power, boosted sentiment in the crypto market, driving up prices of Bitcoin and other cryptocurrencies.

Bitcoin's price has more than doubled this year, soaring to approximately $100,000 per coin. To further promote the crypto industry, Trump also planned to create a White House Director of Artificial Intelligence and Cryptocurrency upon assuming office, reportedly nominating David Sacks, a former PayPal executive, for the role. He also nominated Paul Atkins to chair the Securities and Exchange Commission. Both Sacks and Atkins are strong proponents of cryptocurrency development, solidifying market expectations of a pro-cryptocurrency administration under Trump.

However, Trump's "Bitcoin strategic reserve" plan wasn't without opposition. Analysts pointed to Bitcoin's volatile price history over its 15-year existence, highlighting its inherent uncertainty as a store of value or medium of exchange key functions of a national reserve currency. Bitcoin's price volatility makes it unsuitable for a national reserve asset.

Support within the Republican party wasn't unanimous. While Senator Cynthia Lummis drafted a bill proposing the Treasury Department purchase 200,000 Bitcoin annually, aiming for a 1 million Bitcoin reserve funded by Federal Reserve bank deposits and gold reserves, this proposal faces significant hurdles.

A recent Barclays report noted that establishing such a reserve would require Congressional approval and the Treasury issuing new debt to raise funds. Analysts estimated the plan "would face staunch resistance from the Fed." Powell explicitly stated that the legal issues surrounding a Bitcoin reserve "are for Congress to consider, but the Fed doesn't intend to seek changes in the law."

Fed officials generally maintain a cautious stance on digital assets like cryptocurrencies; the Fed's own "digital dollar" project has been shelved. Powell stated on October 4th: "The Federal Reserve is responsible for regulating and supervising banks, and we want the interaction between the crypto industry and banks...not to threaten the health of the banking system." He emphasized maintaining financial system stability, hinting at the Fed's reluctance to support policies that might disrupt it.

Powell's firm rejection of Trump's "Bitcoin strategic reserve" plan reflects the Fed's cautious approach to cryptocurrencies. The Fed prioritizes maintaining financial stability and guiding the crypto industry through regulation, rather than direct participation. This stance creates a potential conflict with the potentially pro-cryptocurrency policies of a Trump administration.

The contradiction between the Trump administration's pro-cryptocurrency stance and the Fed's cautious position will be a key focus in future US policymaking. The Trump administration would need to balance promoting cryptocurrency with maintaining financial stability. If Congress were to pass a bill establishing a Bitcoin reserve, the Fed would face significant pressure to assess the plan's potential impact on the US financial system.

Bitcoin's price volatility and its uncertain value as a reserve asset make incorporating it into national reserves extremely risky. Even with Congressional approval, the Treasury would need to carefully consider its financial risks and potential negative consequences.

The Fed's position also reflects a broader global central bank attitude toward cryptocurrencies. Many central banks are exploring digital currencies but remain wary of the risks associated with cryptocurrencies. The Fed's shelving of its digital dollar project and opposition to Trump's "Bitcoin strategic reserve" plan embody this caution.

Given Bitcoin's volatility and uncertainty, and the Fed's commitment to financial stability, the success of Trump's "Bitcoin strategic reserve" plan remains highly uncertain. Its fate hinges on the interplay between Congress, the Treasury, and the Fed, and on a comprehensive assessment of its potential risks. Debate and discussion surrounding this plan are likely to continue for some time.

Whether Congress can overcome Fed opposition and potential fiscal risks to approve this proposal remains an open question. The proposal's ultimate fate will significantly impact the US and global cryptocurrency markets. Any hasty decision could negatively affect financial stability, underscoring the need for careful consideration. Future developments warrant close monitoring.

In conclusion, Trump's "Bitcoin strategic reserve" plan has sparked widespread debate concerning cryptocurrencies, government regulation, and financial stability. The Fed's strong response highlights significant internal government divisions on this issue, divisions likely to persist. The final outcome will depend on the interplay of various forces and a careful weighing of risks and rewards.