Bill Dudley, the former president of the Federal Reserve Bank of New York, argues that there are no advantages to making bitcoin (BTC) a government reserve currency. Dudley, who currently chairs the Bretton Woods Committee, believes the proposal primarily benefits existing Bitcoin holders, hence their strong support for the proposal.
In a Dec. 6 op-ed published on Bloomberg, Dudley cited a draft U.S. bill that would allow the government to acquire and store BTC. He argues that enacting such a law would only inflate the price of bitcoin. Additionally, Dudley expressed concerns about the lack of an exit strategy, suggesting the government would be left holding “volatile tokens that produce no income.”
As previously reported by Bitcoin.com News, Republican Senator Cynthia Lummis introduced the Bitcoin Act of 2024 on July 31. The draft legislation proposes the creation of a strategic bitcoin reserve and other programs to ensure transparency in managing BTC holdings. The bill also suggests that the reserve could “offset costs utilizing certain resources of the Federal Reserve System, for other purposes.”
Although the bill was introduced to the U.S. Senate on July 31, 2024, Donald Trump’s victory in the recently concluded U.S. elections has reignited interest in Lummis’ proposal. As reported by Bitcoin.com News, some view this as an inevitable move toward global bitcoin adoption, while others see it as a betrayal.
However, in his essay, Dudely explained why adopting the proposal could spell trouble.
“For example, the US government’s imprimatur encouraged everyone to make Bitcoin a small part of their investment portfolio – say, just 2%. The total value of global stocks and bonds is about $250 trillion, so 2% would require all Bitcoin to be worth $5 trillion, or $250,000 each. Double the portfolio allocation to 4%, and the price would need to double again,” Dudley wrote.
Meanwhile, the former Federal Reserve chair urged Trump to focus on developing a set of laws and regulations to ensure the safe operation of the crypto industry. The new Trump administration should also verify that stablecoins are indeed backed by treasury bills as claimed by issuers. Additionally, strong consumer protection laws must be established.
Although cryptocurrency technology has the potential to improve the financial system, Dudley argued that without “strong guardrails,” fraud and abuse will continue to plague the digital asset space. This, in turn, undermines the “trust required to bring such benefits to fruition.”
