Why Trump Is Right on a Digital Currency Reserve

President Trump has proposed the Federal government hold digital currencies, and some media and political people have pushed back with dire warnings of the impact on the U.S. dollar. But the reality of Trump’s proposal differs sharply from that painted by Trump’s hysteric critics. BTC is not a threat to the U.S. dollar and U.S. government holding of BTC or any other digital currencies is not an endorsement.

The U.S. dollar still dominates the world, representing nearly 60% of all currency held by central banks, as of Dec. 2024, according to the IMF. Unlike fiat currencies, bitcoin and other digital currencies are not governed by any central bank. So, there is no way to ever have an adversarial relationship with the issuer of BTC – unlike the issuer of Chinese yuan or Russian rubles.

Most of the forex reserves held by the U.S. are euros and Chinese yuan. But no one is calling for the U.S. to stop holding euros. That’s because holding a currency in reserve is not an endorsement of that currency. Countries hold forex reserves primarily for liquidity purposes – mainly to facilitate foreign trade with counterparties using the other currency. And, since BTC and ETH are the largest digital currencies, the most liquid and the largest volume of USD transactions, it makes sense for the U.S. to hold those currencies.

Most importantly, the U.S. dollar dwarfs BTC in size. USD value is more than 1,150x larger than BTC at $2,300 billion USD versus about $2 billion for BTC. And BTC ranked as only the 16th largest foreign currency in the world, measured by USD, as of the start of 2024. So, if the U.S. held 50,000 BTC, it would represent less than 5% of its foreign currency reserve holdings.

Further, the U.S. has extensive reserves of gold and silver, neither of which is used any longer as currency by any major country. There does not seem to be any risk these U.S. holdings will be deemed to be an endorsement of gold as a currency, though gold is held by the U.S., in part, because it is a good store-of-value.

Critics of digital currencies argue they have no inherent value – but that is like saying a Picasso has no inherent value, aside from the inherent value of dried paint and an old canvas. What a Picasso has is social value and scarcity value – the same sources of value as BTC. Bitcoin’s social value derives from its objective to serve a role outside control of governments. Its scarcity value acts to support BTC’s price and enhances its utility as a store-of-value.

There’s another reason for the U.S. to hold virtual currencies. They represent a major leap in financial technology and it is in the paramount interest of the United States to be at the forefront of fintech. It’s not only to make the U.S. the most efficient financial player, but also to be best prepared for changes that may come in the future. Blockchain technology has proven to have many uses beyond digital currencies, including reducing transaction costs thereby benefiting all consumers.

So, not only is Trump’s proposal based on solid economics and consistent with holdings of other foreign currencies, but, also, it gives a boost to the fintech sector. It is smart and forward-looking. Sounds like a double win for the U.S.