Trump's Bitcoin Backing Ignites Debate: A Legal and Economic Clash Over US Strategic Reserves

Trump's Bitcoin Backing Ignites Debate: A Legal and Economic Clash Over US Strategic ReservesRecent discussions regarding the inclusion of Bitcoin in US strategic reserves have intensified. A Texas state representative recently proposed a bill to establish a state Bitcoin reserve, signifying that at least ten US states are currently exploring legislation on this issue

Trump's Bitcoin Backing Ignites Debate: A Legal and Economic Clash Over US Strategic Reserves

Recent discussions regarding the inclusion of Bitcoin in US strategic reserves have intensified. A Texas state representative recently proposed a bill to establish a state Bitcoin reserve, signifying that at least ten US states are currently exploring legislation on this issue. This wave of activity is traceable to July 28, 2024, when then-Republican presidential candidate Donald Trump, speaking at the Bitcoin 2024 conference, declared that if re-elected, he would "include Bitcoin as a US strategic reserve asset." However, Federal Reserve Chairman Jerome Powell swiftly responded, stating that the Fed had no intention of adding Bitcoin to its balance sheet, citing limitations imposed by the Federal Reserve Act and affirming that the Fed wouldn't seek to amend the law, leaving the decision to Congress.

The core conflict lies in the legal hurdles facing Bitcoin's inclusion. Chairman Powell's statement highlighted the central issue: the existing Federal Reserve Act severely restricts the types of assets the Fed can hold. The Act explicitly and meticulously defines permissible assets, and Bitcoin, as a decentralized digital currency, doesn't align with these requirements.

The US political system's separation of powers vests legislative authority in Congress. Therefore, the assets the Fed can hold ultimately depend on the legal framework established by Congress. As a central bank independent from the executive branch, the Fed, while possessing significant responsibilities including monetary policy, must strictly adhere to Congressional legislation regarding its asset holdings.

So, precisely which criteria in the Federal Reserve Act does Bitcoin fail to meet? To answer this, we must define strategic reserve assets.

Strategic reserve assets are crucial assets held by national or regional governments to mitigate economic fluctuations, financial crises, or geopolitical risks, thereby safeguarding financial stability, economic security, and international competitiveness. Currently, these assets typically exhibit high value, high acceptance, high security, high stability, and ample liquidity.

Traditionally, strategic reserve assets fall into three categories: gold, foreign exchange reserves, and Special Drawing Rights (SDRs). Gold, due to its scarcity and inflation-hedging properties, has long been considered an ideal store of value; foreign exchange reserves are usually denominated in stable, strong currencies like the US dollar, euro, pound sterling, and Japanese yen, with the US dollar dominating international trade settlements; and SDRs, allocated by the International Monetary Fund (IMF), are book assets used to repay IMF debts and offset balance-of-payments deficits, their value determined by a basket of reserve currencies including the US dollar, euro, renminbi, Japanese yen, and British pound.

Bitcoin fulfills some requirements for strategic reserve assets, particularly in value and liquidity. However, its security and acceptance remain highly contested. Bitcoin's anonymity presents significant challenges to government oversight and regulation, leading to widely varying national attitudes. Regarding stability, consider the period from November 6, 2024 (Trump's declared victory) to December 5, 2024, where Bitcoin's price surged from under $75,000 to over $100,000 per coin hardly indicative of stability. The inclusion of Bitcoin in the Fed's asset system, therefore, risks severe systemic shocks should its price fluctuate drastically again. Thus, Bitcoin fails to meet the requirements of a strategic reserve asset.

Furthermore, the very nature of Bitcoin as a currency requires further examination.

Economists hold differing views on the essence of money. Two prominent perspectives exist:

The first views money as a special commodity, essentially a generally accepted medium of exchange. This perspective emphasizes the transactional function of money, downplaying factors like quantity, issuer, and value. From this standpoint, Bitcoin exhibits some characteristics of a "de facto currency."

The second, and currently more dominant, perspective posits that money is not a commodity but rather a representation of credit. In today's world, national governments enjoy the highest creditworthiness, explaining the widespread trust in sovereign currencies. Trust lies not in the physical currency but in the national credit it represents, underpinned by economic strength and tax capacity. By this definition, Bitcoin, lacking sovereign credit backing, struggles to fulfill the function of money.

However, reality often surpasses theory. On September 7, 2021, El Salvador became the first country to adopt Bitcoin as legal tender, launching the Chivo wallet and pre-loading each user with $30 worth of Bitcoin, thereby integrating it into the national economy. The Salvadoran government reportedly counteracts market volatility by announcing Bitcoin purchases on social media to boost confidence and continues daily purchases, currently holding approximately 6,000 Bitcoins.

It's crucial to note, however, that El Salvador's strategy, implemented within a small economy, is largely experimental and its applicability to large economies like the US remains uncertain.

In conclusion, despite President Trump's pro-Bitcoin stance, incorporating Bitcoin into US strategic reserves remains exceedingly difficult. Bitcoin's future role in the global financial system remains to be seen.