White House economic adviser Judy Shelton made headlines last week after President Donald Trump nominated her to the Federal Reserve Board of Governors. The mainstream press and finance industry were surprised to learn Trump's Fed pick is a "gold bug."
She advocates returning the U.S. Dollar to the "gold standard."
President Trump's Fed Nominee Dr. Judy Shelton discusses her support of a return to the gold standard and her critical take on central bank activity
— Squawk on the Street (@SquawkStreet) July 5, 2019
That's especially surprising given Donald Trump's stridently pro-fiat dollar comments on Twitter Thursday. The president spoke out on cryptocurrency for the first time on Twitter. He said he's "not a fan." The three-tweet thread railed against crypto and sung the praises of central bank money. It read like it had been drafted by New York Times columnist and Keynesian economist Paul Krugman.
But the mainstream media missed something else interesting about Shelton. She's a cryptocurrency advocate too! And the U.S. president actually nominated her to the Federal Reserve Board.
The U.S. Dollar Gold Standard
Under a gold-backed dollar, the Federal Reserve would stabilize the dollar price of gold.
The United States was on the gold standard until 1971. That was when President Richard Nixon suspended gold convertibility of the dollar by executive order.
The old monetary regime limited the Fed's wiggle room to enforce its twin congressional mandates. These are to keep unemployment low and stabilize prices in general.
Therefore, mainstream economists consider Shelton's gold standard advocacy a fringe view. So that's why Fed Chair Jerome Powell swiftly pushed back on the idea in Congress this week.
Judy Shelton's 2018 Cato Paper Promoted Crypto
In a 2018 policy paper published by the Cato Institute in Washington, Judy Shelton laid out the case for returning the U.S. to a gold standard currency.
But she advocated for cryptocurrency in the paper as well. The press ignored that part:
"If the appeal of cryptocurrencies is their capacity to provide a common currency, and to maintain a uniform value for every issued unit, we need only consult historical experience to ascertain that these same qualities were achieved through the classical international gold standard without sacrificing the sovereignty of individual nations."
Shelton's vision of an ideal monetary system?
"A modern version of this approach—one that permits the issuance of virtual currencies in tandem with government-issued currencies, adapting legal tender laws to permit healthy currency competition—should be put forward."
What Shelton envisions is a free market of competing currencies, including private digital currencies. She's also realistic about the dollar's chances of competing with cryptocurrency.
She understands the dollar will have to represent something of substantive value to stand a chance against the onslaught of new currencies.
Other Trump-Affiliated Crypto Bulls
Trump's Fed pick isn't the only crypto bull who's affiliated with the bitcoin-bashing president.
In September 2017, the Senate confirmed Trump nominee Rep. Mick Mulvaney (R-SC) to the post of White House budget director; he later became acting White House Chief of Staff. Mulvaney is a long-time bitcoin supporter. He co-founded the bipartisan Congressional Blockchain Caucus on Capitol Hill with Jared Polis.
U.S. Senator Rand Paul (R-KY) is also a close, if unlikely, Trump ally. He often bends the Donald's ear in frequent phone calls and trips on Air Force One. Rand Paul started accepting bitcoin for campaign donations in 2015 for both his reelection and presidential campaigns. His dad - not a Trump fan - has also come around to the benefits of bitcoin.
But it is astonishing nonetheless that a Fed nominee is bullish on crypto. It makes you wonder whether Donald Trump secretly is a fan of crypto.
It'd make for a nice conspiracy, anyway.