Ex-Citi Chief Economist on Gold, Bitcoin and the Debasement of the US Dollar

Gold is considered a 6,000-year bubble with little intrinsic value, and central banks should divest from it in favor of diversified real and financial assets, while well-backed stablecoins represent the future of payments.

• Gold's value is speculative and fragile, making it an unsuitable reserve asset for central banks.

• Central banks should divest from gold and Bitcoin, favoring diversified portfolios of real and financial assets.

• Fully backed, interest-paying stablecoins, and well-designed CBDCs are the future of efficient and democratized finance.

Willem Bouter asserts that gold's value is based on fragile, self-fulfilling beliefs, akin to a 6,000-year bubble, and advocates for central banks to sell their gold reserves to invest in diversified portfolios of real and financial instruments. He dismisses Bitcoin as too risky for central bank balance sheets, despite acknowledging its utility as a payment method, and emphasizes that stablecoins, particularly those fully backed and interest-paying, are the desirable future for financial transactions. Bouter criticizes tokenized deposits and partially backed stablecoins for their inherent risks and taxpayer burden, while seeing potential in well-designed retail Central Bank Digital Currencies (CBDCs) for their ability to democratize finance and enhance monetary policy tools.

Gold as a 6,000-Year Bubble

• 00:00:40 Gold is described as a '6,000-year bubble' because its value is primarily sustained by the belief that it is a reliable store of value, with very few intrinsic services or consumption uses. This makes its current high valuation incredibly fragile and self-fulfilling, similar to Bitcoin's valuation. Central banks, particularly the U.S., hold excessive gold reserves worth over a trillion dollars, which is deemed an irrational and risky bet given the availability of superior, diversified investment alternatives.

Central Bank Asset Allocation

• 00:02:49 Central banks should not be 'slaves of history' by holding gold, but instead should diversify their assets into a portfolio of real and financial instruments to protect taxpayers. Willem Bouter believes the U.S. government should sell its gold reserves to financially robust speculators, not fragile individuals, and reinvest the proceeds into diversified assets. He also emphasizes that Bitcoin is too risky for central bank balance sheets, as they cannot afford the potential loss if its price were to go to zero.

The Future of Digital Currency

• 00:13:17 While Bitcoin is too volatile and risky, the future of payments lies in blockchain-based instruments like stablecoins, which must be fully backed by central bank reserves or short-duration treasury debt. Bouter argues that Bitcoin's cap on total units is not a true limit, as identical 'Bitcoin 2, 3, etc.' could be created, thereby increasing the aggregate supply of similar instruments. He dismisses the idea of tokenized deposits as undesirable due to their partial backing, which maintains the risk of bank runs and necessitates taxpayer-funded support, advocating instead for fully backed, interest-paying stablecoins.

The Fed and Monetary Policy

• 00:31:51 Willem Bouter expresses opposition to the Federal Reserve's expected rate cut, arguing that inflation at 3% remains above target and the economy, particularly the labor market, does not show significant weakening to justify such a move. He suggests that the Fed might have a different inflation objective or an incorrect view of monetary policy transmission. He also addresses the political pressure on the Fed, asserting that while it is undeniable, the institution likely maintains its independence as long as the Board of Governors is not controlled by presidential appointees.