Reserve Bank Governor slams idea of a strategic Bitcoin reserve

South African Reserve Bank Governor Lesetja Kganyago slammed the idea of creating a strategic Bitcoin reserve in the country, saying there are better assets suited to this role. 

Kganyago made these comments during a panel discussion at the World Economic Forum in Davos. Fellow panel member Coinbase CEO Brian Armstrong made a strong case for the increasing use of cryptocurrencies within the traditional financial system. 

The conversation follows US President Donald Trump’s pledge to create a strategic Bitcoin reserve in the United States. This reserve would include the Federal government holding billions of dollars worth of the cryptocurrency. 

This initiative positions Bitcoin as a strategic asset to hedge against inflation, reduce national debt, and strengthen the US’s financial leadership globally.

Many questions have been raised regarding such a reserve, like Bitcoin’s apparent lack of use outside of being a speculative asset. 

A more pressing question is why taxpayer money should be used to create a new strategic reserve over time when central banks already hold gold for this purpose. 

One could argue that part of the existing gold reserves should be sold to purchase ‘digital gold’ in the form of Bitcoin, which, given its appreciation over the past few years, could be a far better hedge against inflation. 

However, US-based economist George Selgin has pointed out that this is a fallacy, as gold is held due to its sheer inertia and lack of volatility rather than its appreciation in value. 

While Bitcoin and other cryptocurrencies experience wild fluctuations within short periods of time, gold’s value has proven incredibly stable over centuries. 

Gold also has a centuries-long history as a store of value and a medium of exchange. As the financier JP Morgan pointed out in 1912, “Gold is money. Everything else is credit.”

According to the IMF’s data, the world’s monetary and fiscal authorities held $12.3 trillion in foreign exchange assets and 29,030 metric tons of gold, worth around $2.2 trillion.

Kganyago made a similar argument during the panel discussion in Davos, arguing that for Bitcoin to be used as a reserve asset, it must provide a strategic benefit to the country or the central bank that other commodities cannot. 

“I will have a significant problem with a lobby that says that government should hold this asset or this asset without recognising what the strategic intent is,” Kganyago said. 

He explained that gold has a long history of being used as a medium of exchange or a store of value, giving the example of it being used to back currencies until the mid-20th century. 

“But, if we now say that we should add Bitcoin to our reserves, what about platinum? What about coal?”

“Why don’t we hold strategic beef reserves? Or mutton reserves? Or apple reserves? Why Bitcoin?”

Kganyago said a decision to add an asset to a country’s strategic reserves is an immensely complex process that requires significant engagement with financial institutions, politicians, and the public. 

“I would caution against a move from a particular industry that has a particular interest in a specific product and wants to impose it on society and says that it must hold this product.”

Coinbase CEO Armstrong took the opportunity to respond to Kganyago’s comments and argued that Bitcoin should be used to replace gold as a strategic reserve asset. 

“I think this is still a very new idea, but I think it is clear at this point that Bitcoin is a better form of money than gold,” Armstrong said. 

“It is provably scarce, just like gold. But, it is more portable and divisible, so you can use it as a medium of exchange in the 21st century.”

Armstrong also touched on Bitcoin’s meteoric rise in value to argue that it is a better store of value against inflation than gold.

“It has been the best-performing asset over the past ten years, and as a store of value, I think it will be important for governments to hold this asset over time.”