Democratic presidential candidate Robert F Kennedy Jr (RFK Jr) has presented a plan for restoring the US Dollar’s supremacy in the global financial system.
In short, the plan involves exempting Bitcoin from capital gains tax when it is converted to US Dollars, and to back the US Dollar with what RFK Jr calls ‘real finite assets’
According to RFK Jr, “Backing dollars and U.S. debt obligations with hard assets could help restore strength back to the dollar, rein in inflation and usher in a new era of American financial stability, peace and prosperity”
He also reiterated that he would protect the right to self-custody bitcoin, run blockchain nodes, and pass industry-neutral energy regulation.
How feasible is RFK Jr’s plan?
The vision that RFK Jr has for the US Dollar and Bitcoin is ambitious. Indeed, it is quite the tall order to try and restore the US Dollar to its former glory.
The good news is that RFK Jr actually has a plan, where none has existed before.
The bad news, however, is that the plan makes very little sense in the long term.
RFK Jr’s plan essentially boils down to a return to the modified gold exchange standard, which I have previously discussed.
Under such a system, the USD would be the world’s reserve currency, and be backed by another asset that the US Treasury would have to hoard- in this case, a mixture of precious metals and bitcoin.
While initially, there might be some success in reining in inflation because the amount of paper currency would be fixed to a certain amount of assets, this is not likely to last.
How such a system works in practice is that the government must declare that paper currency, in this case the USD, is redeemable for a certain amount of assets, and be willing to honour these redemption requests at any time.
In other words, people must be able to hold bitcoin, gold, and other such assets that are used to back the USD.
While this might seem to go hand in hand with RFK Jr’s plan to protect people’s right to hold Bitcoin, it would make fiscal policy almost impossible.
If the federal government wants to increase spending, which it almost always does, it will need to finance such spending by printing more money, which must also be backed by assets. Unfunded borrowing under such a system would devalue the currency as people lose trust in the fiat currency, and inflation would return.
Backing the USD, therefore, is not exactly the most feasible plan for a country that consistently runs fiscal deficits. Countries like Singapore, which consistently run fiscal surpluses, on the other hand, might find such a system more feasible.
This was exactly the problem that the federal government ran into under the gold bullion standard- the federal government in 1933 could not fund its spending without breaking the peg, and President Roosevelt made a controversial decision: With Executive Order 6102, he made private holdings of gold illegal, and ordered Americans to turn over their gold holdings for cash.
Suffice to say, a similar action today would almost result in riots and violent protest from cryptocurrency holders who have been ordered to turn their bitcoin over to the government.
However, without such a step, backing the US Dollar with bitcoin, gold, and other assets would be a temporary measure at best. As government spending continues to rise, and US debt continues to climb, the peg would quickly become untenable and subject to widespread arbitrage, resulting in devaluation.
RFK Jr’s plan, therefore, is in need of some serious rethinking- if not on how he intends to fulfil his promises, then on how to ensure that his system lasts.
At present, RFK Jr seems to be a candidate of choice for many in the crypto world, including industry leaders and everyday users. But like always, we must be careful of how much of his plans and promises are actually feasible, and how much of his castle is being built in the air.
This article is originally published on Coinlive.com