Republican Senator Cynthia Lummis Says Converting Gold Reserves Into Bitcoin Could Strengthen the U.S. Government's Finances

Lummis, known for her bullish support of cryptocurrency, believes that creating a strategic Bitcoin reserve could strengthen the dollar's position as the world's reserve currency and reduce the country's debt burden.

Republican Senator Cynthia Lummis has proposed converting a portion of the U.S. gold reserves into Bitcoin to strengthen the country's financial stability and reduce its debt burden.

In an interview with CNBC, Lummis suggested that the Federal Reserve could sell some of its gold holdings, which are currently valued at 1970s prices, and use the proceeds to purchase Bitcoin (BTC). This move would help create a "strategic Bitcoin reserve," which Lummis believes could enhance the dollar's status as the world's reserve currency.

Highlighting Bitcoin's potential for high returns, especially as it approaches $100,000, the senator likened it to a "gold standard digital asset." She also emphasized the importance of creating a strategic reserve in implementing Bitcoin as a monetary standard.

“We have reserves at our 12 Federal Reserve banks, including gold certificates that could be converted to current fair market value. They’re held at their 1970s value on the books. And then sell them into bitcoin, that way we wouldn’t have to use any new dollars in order to establish this reserve.”

Lummis further noted the Trump administration's interest in cryptocurrencies, which she believes could lead to the development of digital asset legislation in the coming years.

The Bitcoin Strategic Reserve Fund is a comprehensive initiative aimed at strengthening financial stability and protecting the nation's assets. It involves the creation of a Bitcoin Strategic Reserve, which will serve as a secure financial mechanism for the government and other agencies to use Bitcoin as a long-term asset.

The reserve will feature a decentralized storage network, where the U.S. will create a distributed network of secure Bitcoin storage facilities to protect assets from centralized risks and vulnerabilities. These storage facilities will be located in different regions, reducing dependence on a single point of failure.

The government will also implement a Bitcoin purchase program, aiming to purchase 200,000 BTC per year for five years to increase the strategic reserve to 1 million BTC. These purchases will be made regularly to avoid sharp price fluctuations and ensure consistency.

All purchased Bitcoin will be held in the reserve for at least 20 years. Additionally, all Bitcoins currently stored in other government agencies will be transferred to the strategic reserve, allowing for centralization and efficient asset management.

States can voluntarily participate in this reserve by opening segregated accounts to deposit or withdraw their Bitcoin assets as needed. This initiative will be supported because government agencies cannot confiscate or seize the rights to legally owned Bitcoin assets. This will provide confidence and incentives for Americans to store their Bitcoins independently.

However, Avik Roy, president of the non-profit think tank Foundation for Research on Equal Opportunity (FREOPP), expressed doubts that creating a strategic reserve in Bitcoin will help the U.S. overcome the debt crisis.

Speaking at the North American Blockchain Summit 2024 in Dallas, Avik Roy said that Lummis’s plan will not help cover the national debt, which has already grown to $35 trillion.

“The Bitcoin reserve is good but does not solve the problem. You still have to actually do the budgetary reforms to get us out of this $2 trillion a year of federal deficits.”

According to Roy, even with a Bitcoin reserve, the U.S. would still have to implement budgetary reforms to get the country out of its $2 trillion federal deficit annually.

The political scientist noted that the BTC reserve could ease tensions in the bond market by making it feel like the U.S. is not going broke. Roy is also concerned that the U.S. could abandon its BTC reserves in the future, similar to what happened with gold in the 1970s.

Bitcoin as a reserve asset also presents several challenges, with the biggest being volatility. Bitcoin's price fluctuations make it a risky reserve asset compared to more stable options like gold.

After all, Bitcoin has experienced several notable crashes throughout its history.

Bitcoin is also typically associated with illicit activities and discreet purchases, which raises concerns about integrating it into national financial systems. Critics say it could also enable countries like Russia to bypass international sanctions, undermining global financial stability and creating geopolitical tensions.

Several cryptocurrency companies, including Ripple, Kraken, and Circle, are vying for a seat on President Donald Trump's promised crypto advisory board, according to Reuters. They aim to participate in his plans to overhaul U.S. cryptocurrency policy.

During his campaign at a Bitcoin conference in Nashville in July, Trump promised to create a new council as part of a pro-crypto administration. Trump’s team is discussing how to organize and staff the council and which companies should be included.

Potential members include venture capital firm Paradigm and the crypto arm of venture giant Andreessen Horowitz, known as a16z.

“It’s being fleshed out, but I anticipate the leading executives from America’s bitcoin and crypto firms to be represented.”

According to sources,