A reporter asked about the U.S. national BTC strategic reserve.

Powell responded: The Federal Reserve is not allowed to own Bitcoin. We are not seeking any legal changes.

He indeed spoke in accordance with the 'current' situation.

However, this statement is somewhat general, vague, and abstract. We need to carefully break it down.

First, what does Powell think the nature of BTC is?

Looking back at the Chain of Teaching's article dated 2024.12.5 (The Bitcoin Wind Rises Again, Breaking $100,000 for the First Time), Powell recently stated publicly that, in his view, BTC is more like gold. He said, 'It is not a competitor to the dollar, but a competitor to gold.'

In other words, he believes BTC is a physical asset.

So, can the Federal Reserve directly 'own' physical assets? Clearly not.

For example, gold. The United States' gold reserves are actually owned by the U.S. Treasury. The actual storage and safekeeping are distributed across reserve vaults located throughout the U.S. (such as the New York Federal Reserve Bank). According to the Gold Reserve Act of 1934, the Treasury issues gold certificates to record the value of the gold it possesses. These gold certificates issued by the U.S. Treasury serve as legal proof of the gold reserves.

Can the Federal Reserve own gold as a physical asset? No. The Federal Reserve can only own gold certificates as financial assets.

However, even to possess gold certificates, one must act in accordance with the law. The key here lies in legally accounting for the value of financial assets on the Federal Reserve's balance sheet.

According to the Federal Reserve Act of 1913, the Federal Reserve can account for gold certificates on its balance sheet as part of its reserve assets. Gold certificates are recorded at nominal value on the Federal Reserve's balance sheet, representing the value of gold promised by the Treasury.

In accounting, the price of gold reserves is set by the International Monetary Fund Agreement Act of 1973, which fixes the price of gold at $42.22 per ounce, rather than at market prices. Regarding this pricing, the Chain of Teaching has discussed it in detail in the article dated 2023.11.14 (How Much Gold Does the U.S. Actually Hold?), and it will not be elaborated here.

However, this pricing is not set in stone. For instance, our central bank adjusts pricing based on market prices.

Well, having understood this, we need to examine two questions in succession:

First, can the newly elected President of the United States authorize the Treasury to reserve BTC (Bitcoin) and issue 'Bitcoin certificates' solely by virtue of presidential power?

Second, can the Federal Reserve, without amending the Federal Reserve Act of 1913, treat the 'Bitcoin certificates' as a matter of urgency and include them in the balance sheet?

For the first question, the 35th President of the United States, John F. Kennedy, has already set an example.

On June 4, 1963, President Kennedy signed an executive order, Executive Order 11110. This executive order authorized the U.S. Treasury to issue 'Silver Certificates' based on the silver reserves owned by the Treasury, under the authority of the Silver Purchase Act of 1920.

Essentially, silver certificates are a form of U.S. currency that can be exchanged for an equivalent amount of physical silver.

On November 22, 1963, President Kennedy was assassinated.

It sounds like a female singer's voice is coming from the radio:

I want to ask you if you dare / To love me as you said /

I want to ask you if you dare / To love me as you said

I want to ask you if you dare / To love me as you said /

Like me, madly in love / What do you really think?

Regarding the second question, the Federal Reserve has already demonstrated this personally.

During the 2008 financial crisis, the Federal Reserve took a series of unconventional monetary policies, including purchasing MBS and other financial assets, to provide liquidity and support the U.S. economy. This policy is known as Quantitative Easing (QE).

Article 14, Section 2 of the Federal Reserve Act of 1913 stipulates that the Federal Reserve may purchase government bonds (such as U.S. Treasury bonds) to manage the money supply and stabilize the economy, but the Act does not explicitly authorize the Federal Reserve to purchase private assets unrelated to the government, such as mortgage-backed securities (MBS).

The core issue is: does the power of the Federal Reserve belong to public power or private rights?

After all, public power cannot act without legal authorization. If the law does not explicitly state that the Federal Reserve can directly purchase MBS, then its direct purchase of MBS would be considered illegal.

However, the Federal Reserve, as the central bank of the United States and even the global central bank, is akin to a bug. The Federal Reserve is actually a private institution rather than a public sector. And private rights can be exercised unless prohibited by law.

Therefore, this can be flexibly interpreted.

The usual explanation is as follows:

On one hand, the Federal Reserve Act of 1913 does not explicitly prohibit the Federal Reserve from purchasing certain types of assets.

On the other hand, the Federal Reserve has found other legal provisions to endorse its 'emergency measures', including laws such as the Emergency Banking Act of 1932 and the Financial Stability Act of 2008. These laws authorize the Federal Reserve to take more unconventional monetary policies in specific emergency situations, which are considered to provide a legal basis for the Federal Reserve's purchase of MBS during a crisis.

In summary, the Federal Reserve explains that the purchase of MBS is necessary for monetary policy and financial stability, and is an emergency measure taken in response to special circumstances during a financial crisis. Therefore, although these actions do not conform to the literal provisions of the Federal Reserve Act of 1913, the government has provided a legal basis for these measures through new authorizations.

In fact, U.S. courts at all levels have not explicitly ruled that these actions violate the Federal Reserve Act of 1913, but rather view them as emergency response measures.

Therefore, the conclusion is that, despite the existence of legal gray areas, this action has not been seen as directly violating the Federal Reserve Act of 1913.

The Chain of Teaching has repeatedly mentioned that the Federal Reserve has been quietly replacing its 'gray' MBS positions with legal U.S. Treasury positions.

This pile of mess has been dealt with since 2008 up to today.

So, even without seeking legal changes, the Federal Reserve can find legal justification for what they do or do not do by flexibly interpreting the nature of their own powers.

Finally, the Chain of Teaching also needs to mention that global central banks have an international coordination organization called the BIS (Bank for International Settlements). This is part of the international financial order established after World War II.

The members of the BIS are primarily composed of central banks from around the world, with about 60 members currently. These members include central banks from major global economies, such as the Federal Reserve of the United States, the European Central Bank, and the People's Bank of China. It was founded in 1930 and is headquartered in Basel, Switzerland, and can be considered the bank for central banks.

In 1974, the Bank for International Settlements (BIS) established the Basel Committee (BCBS, Basel Committee on Banking Supervision) to develop international banking regulatory standards and guidelines.

The main function of the Basel Committee is to formulate international standards related to bank capital adequacy, risk management, and bank supervision, especially regarding capital adequacy ratios, liquidity requirements, and risk-weighted assets. It typically publishes a series of regulatory standards and recommendations for financial regulatory agencies around the world to reference and adopt to ensure the health and stability of the banking system.

In 1988, the Basel Committee introduced Basel Accord I, which was the first standardized requirement for global bank capital adequacy.

In 2004, the Basel Committee released Basel Accord II, which further improved and expanded upon Basel Accord I.

In 2010, after the global financial crisis, the Basel Committee launched Basel Accord III, which aimed to improve the quality of bank capital and enhance the banking system's ability to withstand risks during crises.

It is evident that the BIS (Bank for International Settlements) and the Basel Committee play a crucial role in global bank regulation. The Basel Committee, established through the BIS, is responsible for formulating regulatory standards for the global banking industry, while the Basel Accords (I, II, III) represent these standards in concrete terms.

Central banks around the world, including the Federal Reserve, must usually develop standards for incorporating any asset into their balance sheets, i.e., for exposing themselves to certain assets, through the BIS within the Basel framework, before member central banks can act accordingly.

The Basel Accord is called an agreement rather than a law because it relies on self-discipline among its members, rather than being enforced by coercive means like laws.

Coincidentally, back in December 2022, the BIS released a report indicating that central banks around the world would be allowed to allocate no more than 2% of Bitcoin starting in 2025.