Will Trump use U.S. gold reserves to buy Bitcoin? Former Mint Directors Diehl and Moy say it’s a lousy trade

NEW YORK (March 27) Could the Trump administration be preparing to use the United States’ gold bullion reserves to fund their proposed Strategic Bitcoin Reserve?

Bo Hines, the Executive Director of the Presidential Working Group on Digital Assets, suggested in a recent interview that revaluing government gold was one of the proposals on the table.

“We view Bitcoin as being digital gold,” Hines told Coindesk’s Christine Lee at the Blockworks Digital Asset Summit in New York City. “That's why we set up the Strategic Bitcoin Reserve in the way that we did. It has intrinsic stored value that's traditionally accepted, and we feel like it's in the best interest of Americans to hold on to this asset long-term and accumulate as much as we can get.”

“That's why we've likened this to digital gold and talked about building the digital Fort Knox for the United States,” he added.

And the Trump administration appears to be considering the contents of the original Fort Knox to fund the digital one.

Later in the interview, Lee pointed out that Trump’s executive order suggests acquiring Bitcoin for the reserve in a budget-neutral way. “Senator Cynthia Lummis has reintroduced the Bitcoin Act, suggesting that Fed earnings and gold certificates could be used to acquire Bitcoin. What methods are on the table here?”

“I think that Senator Lummis is really moving the ball forward on Capitol Hill, not only with the [Strategic Bitcoin Reserve], but many other initiatives as well,” Hines replied. “She has a very interesting idea about a budget-neutral way in which we could acquire more. She talks about the gold certificates dating back to the 1970s, which we could realize their actual value today, and use that to purchase more Bitcoin. That's just one creative way.”

“We're going to have these conversations with the interagency working group that was set up and, we'll sort through and flesh out the best ideas and decide how we're going to implement this,” he added. “But we're going to do that in short order. We want to move quickly.”

Not so fast, say two former top custodians of the nation’s gold reserves.

Bullion for Bitcoin is bad central banking  

Edmund Moy served as the 38th Director of the United States Mint from 2006 to 2011. Appointed during the second term of Republican President George W. Bush, he continued in his role through most of the first term of Democratic President Barack Obama, a bipartisan tenure which is not always the case for Mint directors.

“Congress, under the gold standard, set the value of gold through law,” Moy told Kitco News. “When Nixon took us off the gold standard and prevented convertibility in 1972, the law at the time said that the value of gold was $42.22. So that is the statutory value, the book value, of that gold on the United States’ books. Congress has not changed that value of gold and said, ‘It's market value.’”

And Moy doesn’t believe the U.S. government will ever revalue it, only to turn around and spend the added value on something else. “We want to keep all the gold that we have as an asset,” he said. “If you revalued all that gold to current market prices and you sold it all, you would [first], tank the gold market, because there would be so much supply out there. [Second], you would give up this standardized, uniform, trusted asset, of which the United States has the largest [amount]. Number three, all that money that you would get from selling all that gold would fund the government for about five weeks.”

Moy did, however, walk through the possible steps the administration could take to revalue the gold reserve without selling it on the open market and place the money under the Treasury.

“The Federal Reserve Bank is told to send in the old certificate valuing an ounce of gold for $42,” he suggested. “Then the Treasury reissues a new certificate for $3,000. The Federal Reserve Bank of Philadelphia then coughs up the difference from their reserves, and transfers that back to the Treasury.”

This places the one-time revaluation windfall back inside the Treasury, which is to the administration’s advantage, as Treasury Secretary Scott Bessent answers directly to the President. 

“That was [President Franklin Roosevelt]’s total intent by getting the gold reserves out of the Federal Reserve into the Treasury Department,” Moy said. “He controls the Treasury Secretary, and he felt much more comfortable in knowing what was happening to the gold and what was under his purview.”

A major problem with this plan is that it requires the Federal Reserve – the most independent and cautious economic power center in the entire U.S. government – to actively participate. This means that the very mechanism they want to use to create these funds is in the strongest position to say no. The Fed could very plausibly refuse to take real money out of their reserves to create this accounting win on the Treasury’s ledger.

But Moy said that with enough buy-in and support from the other branches, the administration could still force the Fed to comply.

“If within the executive branch, the President is putting pressure on an independent agency – that eventually reports to the President, even though it's supposed to operate semi-independently – Congress can force that to happen,” Moy said. “If it's in Lummis' bill, if Congress dictates that it should happen, then it's up to the President as the head of the executive branch to make it happen, even with the independent agencies.”

But even if the Trump administration manages to exchange the gold certificates and move billions of dollars from the Fed to the Treasury, the challenges of converting the value of the gold reserve into Bitcoin are only just beginning.

Congress: The elephant(s) in the room

Philip Diehl was appointed director of the United States Mint in 1994 and served through to the end of Bill Clinton’s presidency in 2000. During his term, the Mint increased the profits it returned to taxpayers from $727 million to $2.6 billion. Diehl also coauthored the law authorizing the Mint to produce the American Platinum Eagle bullion coin, the nation's first platinum coin.

Diehl told Kitco News that he’s not convinced the gold certificates scheme between Treasury and the Federal Reserve would actually result in new money, even on paper.

“I don't understand how they see that mechanism,” Diehl said. “Now, the reality is that it's entirely possible in the last 25 years since I left the Treasury Department, that the law has changed on how that would occur. But from the time when I was there, I just don't see how it's anything other than an accounting change on the books.”

Still, Diehl acknowledged that President Trump will likely get what he wants from the agencies and departments he controls, but that still leaves the coequal branch of Congress to contend with.

“I'm highly skeptical that Senator Lummis' legislation could pass,” he said. “Number one, it has no momentum from its filing in 2023. She ended up getting five or six co-sponsors last year, and I think she has the same five co-sponsors this year.”

And even if the Senator could marshal the full support of her Republican colleagues – not an easy feat in a party with plenty of crypto-sceptics – her bill would need to garner Democratic votes as well. “This would require a supermajority in the United States Senate, and I'm highly skeptical she could overcome that barrier.”

Diehl said that the congressional battle goes well beyond a simple up-or-down vote, and its multiple bottlenecks and points of failure are designed to prevent any individual from exerting undue influence over the nation’s money.

“That is one of the foundational powers of the division of authority, the separation of powers that is at the core of our constitution,” he said. “And that division of power and restraint on the executive, to prevent the executive from just spending money how they want to, that would require an authorization by Congress and an appropriation of those funds by Congress.”

Diehl said that even if the funds from the revalued gold reserve were sitting in Treasury’s coffers – assuming it even counts as new money – the President still can't spend a dollar of it.

“There is a complicated process that goes through reconciliation, which is going on right now, and through reconciliation there's also an authorization through a separate set of committees, and then there has to be an appropriation from another set of committees,” he said. “This is a complicated process that has evolved – the current process is 50 years old – and there are committees in Congress that are extraordinarily powerful.”

Ruby-red states still aren’t buying

The example of Senator Lummis’ own state shows why Diehl believes there will ultimately be no crypto reserve to fund.

“Her state of Wyoming, and neighboring states of Utah, North and South Dakota, Montana, all their state legislatures have rejected committing their state funds to a state Bitcoin reserve,” he said, “and by large margins, it wasn't close.”

“I think it's for the same reason why it's unlikely to go anywhere [in Washington],” Diehl said. “It's a reserve. It's a long-term hold, not a speculative portfolio. It is an attempt to safely preserve the wealth of a nation, and to, over the long term, ensure confidence in its economy and its currency.”

Diehl said that Bitcoin and other cryptocurrencies have proven to be strong speculative assets, at least some of the time. “But that's not what central banks are into,“ he said. “They are into reliability, store of value, and the long-term preservation of value.”

He noted that over the last several years, central banks have enjoyed the best of both worlds, with their gold reserves providing wealth insurance as well as asset appreciation. 

“While it has made its reputation as an asset that is highly reliable in hard times, the reality is that over the last 25 years or so, gold has performed very well in good times as well – it's not just a hard-time investment,” he said. “And that has been especially true over the last 18 months or so, while the U.S. economy has been very strong, we've seen this incredible rally in gold prices, from $1,800 an ounce to pushing $3,000.”

“To be able to move legislation like that and to get that kind of approval, through such a divided Congress, with a supermajority requirement in the Senate, and over any of the kinds of objections from the Federal Reserve, and over the concerns about the impacts it would have on the global marketplace… I just don't see it happening,” he said.

“Even if it were budget-neutral, it's not risk-neutral, and that's crucial to central bank reserves,” Diehl added. “They are not designed to accept significant risk like Bitcoin would be. Even if you exchanged a dollar’s worth of gold for a dollar’s worth of Bitcoin, it's budget-neutral, but it is not risk-neutral. That's why those legislatures in those states voted it down by wide margins, and one of the reasons why I don't think it's going anywhere in Congress.”

The market isn’t HODLing out hope

Diehl also pointed out that with gold prices continuing to rise above $3,000 while crypto languishes well below its post-election highs, the market doesn’t seem to be betting on any of this happening any time soon – if at all – regardless of how much of a hurry the President’s crypto task force is in.  

“We have not seen the [crypto] market really be moved by either Senator Lummis’ bill or by the executive orders and other talk coming out of the White House,” he said. “The market itself, at this point, is yawning about it.”

And the same is true in the gold market. “If you were expecting this to be implemented, either by executive order or by legislation, you'd expect to see the gold market respond too, because of a substantial portion of the U.S. gold reserves being sold off, and we haven't seen any reaction in the gold market either.”

KitcoNews