At the end of July, the US administration and its agencies produced a series of important regulatory innovations regarding digital assets which we discussed in our previous column about the government’s “crypto week”. Two additional pieces have since been added, namely the Report on Digital Assets issued by the US Treasury department, which provides the institutional framework for the entire digital asset strategy, and “Project Crypto”, led by the SEC’s new leader P.Atkins and Commissioner H. Peirce, which marks a 180 degree inversion compared to Pierce’s predecessor Gary Gensler.
All of these innovations, which will be discussed in depth in our forthcoming research, will have the result of increasing revenues for US Treasury, in order to finance its increasingly large deficit – especially following the approval of the Big Beautiful Bill. It will also create new forms of private-sector money, which will promote the re-dollarisation of the global economy and likely provide a boost to economic activity. When new money is put in circulation, economic activity increases: typically this happens with the issuance of new credit by banks; in this newest form, it will likely happen by the creation of stablecoins, or tokenised deposits, by banks.
But there is a new rabbit that the Trump administration may take out of its hat: the re-evaluation of gold reserves. This operation was done in 1934 by the Roosevelt administration to fight the Great Depression and associated deflation. The mechanism was simple. The Treasury purchased the Federal Reserve’s gold, and gave it in return gold certificates, which still appear at the very top of the Fed’s balance sheet. At that time, the revaluation was able to inject USD 2.8bn into the Treasury’s coffers.
The Trump administration has provided more than one indication that this is what it intends to do. On February 3rd, when Trump, Scott Bessent and Howard Lutnick presented the plan for the US Sovereign Wealth Fund, Bessent said: “We’re going to stand this thing up within the next 12 months. We’re going to study best practices as done around the world. There’ll be a combination of liquid assets, assets that we have in this country, as we work to bring them out for the American people.”
There are rumours in the market, which suggest that gold could be revalued from the current USD 42.20 per troy ounce to USD 15,000 or even USD 20,000, and this could bring as much as around USD 4 trillion dollars into the coffers of the Treasury. A less “heroic” revaluation (from 42.20 to current market value, around USD 3,500 per ounce), would bring less money in the Treasury’s account, but with much less distortion to market prices. Combining the estimated effects of stablecoin regulation (which could lead to USD 2-3 trillion purchases of US Treasury bills by issuers) and gold revaluation (which could bring in $1-2 trillion), the US Treasury would have found the way to finance the extra debt deriving from the BBB, estimated to be around $3-5 trillion by the Congressional Budget Office.
For this operation to take place, on 25 May 2025 the Financial Accounting Manual for Federal Reserve Banks was amended, at section 2.10 on “Gold Certificate Account (110-025)”, page 12: “The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks to monetize gold held by the U.S. Department of the Treasury (Treasury). At any time, Treasury may reacquire the gold certificates by demonetizing the gold.”
If the US Administration proceeds with this move, when is it likely to carry it out ? A historical precedent could be useful here. President Nixon announced the end of USD convertibility into gold on August 15th, 1971. So, August, when most people are distracted by the holiday period, could be the right time for such an announcement.
What would be the risks of such a move? Again, the historical precedent could be a guide. The 1970s – following Nixon’s announcement – were characterised by raging inflation. Even OPEC’s increases in oil prices (in 1973 and 1979) may be read as a reaction to the West’s attempt to devalue the dollar, which reduced the real value of US dollar receipts from oil sales. Inflation would be the most likely risk.
Is the Fed’s assent necessary? Nixon needed the approval of the Fed’s Chair, Arthur Burns, and was advised by its future Chair, the mythical Paul Volker, who was then Undersecretary for International Monetary Affairs. Given the ongoing tensions between Trump and Fed Chair Jay Powell, the latter is unlikely to provide the support needed for such an operation. In this respect, the appointment of a new Fed governor following the resignation of Anne Kluger from the FOMC (as a result of Trump’s firing of the BLS Commissioner) may provide an opportunity for Trump to install a member that would work as a de-facto shadow Chair for the rest of Powell’s mandate.
The combined effects of stablecoin proliferation and gold revaluation is likely to result in a massive period of “monetary illusion,” which will be both a cause and effect of very elevated inflation in coming years, with potential ramifications for financial stability.
