Unchained - Ex-Citi Chief Economist on Gold, Bitcoin and the Debasement of the US Dollar - Ep. 935

Episode Date: October 30, 2025

Gold may have history, but does it have a future? Former Citi Chief Economist Willem Buiter joins Unchained Executive Editor Steve Ehrlich to argue that gold’s “6,000-year bubble” is long overdue to burst.  He explains why he thinks central banks should dump their bullion, why Bitcoin isn’t a reliable store of value, and why fully backed stablecoins and central-bank digital currencies could define the next era of money. He also touches on Trump’s influence on the Fed, tokenized deposits and the future of stablecoins. Thank you to our sponsors! Binance Guest: Willem Buiter, Independent Economic Advisor, Previously Global Chief Economist at Citigroup Timestamps: 💰 0:00 Introduction 🏺 0:28 Is gold really in a 6,000-year bubble? 🫧 4:33 Why Willem says some bubbles can last forever 💵 7:16 What to make of the dollar’s debasement and why other currencies aren’t better 🚫 11:56 Why Willem doesn’t believe in Bitcoin as a store of value 🪙 16:32 Why he says fully backed stablecoins could define the future of money 🏦 19:10 Are tokenized deposits a breakthrough or a threat to the monetary system? 🌐 22:36 Why Willem supports central bank digital currencies 🔢 27:51 Will the world end up with hundreds of stablecoins? 📊 31:23 Is the Fed quietly shifting its inflation target to 3%? ⚖️ 33:57 How Trump’s pressure could undermine Fed independence 🚀 37:39 Why Willem is bullish on tokenized assets Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. I'm executive editor, Steve Erlick, and I'm here today with Willem Bauter. Willem is a long-time practitioner in the financial space. He was a member of the UK's NPC, which is basically the equivalent of the FOMC here. He's a former chief economist at City and has had a long distinguished history career in the financial industry. So welcome, Willam. Thank you. It's a pleasure. Let's get right into it. You run an op-ed in the financial times. a couple of weeks ago, they really kind of caught my eye. And basically, the gist of it was that central banks should, quote, quote, get out of the gold game. You started it by pointing out,

I guess, your belief that gold is in what you call it, I believe, a 6,000-year bubble. And I think that's a great place to start. Can you just explain what you meant by that? Gold is valued mostly for the belief that it is a good store of value. There's very few intrinsic services that it yields either as a consumption good. Yes, I can hang jewelry around my neck, but much of the jewelry even is viewed as an investment rather than something done for its beauty itself. And of course, there's some juices in dentistry, some advanced technology that made use of gold. But it basically has very little intrinsic value.

So this $4,000 plus value that you see today is that high simply because people believe it will be a valuable store of value. And these beliefs, self-fulfilling anything can't be fragile. It's very much like Bitcoin. Bitcoin actually has a proper use, Chyvan, as a means of payment, often for illegal transactions, of course. But that makes a desirable goal used to be, no, back in the Middle Ages and before, 3,000 G.SBC, viewed as a means of payment that have a store of value. but nobody really these days exchanges gold that they go to the shop. So gold's value is what people think it will be. And that is incredibly fragile support for the value of that intrinsically very low value commodity.

And no central bank should simply because historically we've had the gold standard. And the Mesopotamians use gold as a store of value in the interest payment. You don't want to be a slave of history. They have alternative superior means of payments and store values, and central banks should hold their assets in a diversified portfolio of real and financial instruments. And the U.S. has more. more than eight metric tons the US government in gold reserves worth at current market prices over a trillion.

This is completely insane. It's a very risky bet. They should get bit of the gold. Sell it to people that can afford to lose the value that they buy. You don't want to sell it to people who are financially fragile, but don't just sell it to the speculators who believe you will go up and can survive financially if it doesn't, and you invest the trillion in diversified portfolio of financial real assets, which protects the taxpayer. Okay, so a few things to unpack there.

I know some of the crypto people listening here will love one of the things that he said and will strongly disagree with one of the things. I'll begin with the latter, the statement that most Bitcoin payments are used for illicit purposes. We could have an entire other conversation. I've had plenty with data pushing back on that statement. That's not what we're going to do here, though. But the idea that Bitcoin has more intrinsic value than gold, I know the industry will love. But let's just unpack what you said a little bit more here.

I mean, gold is in a 6,000-year bubble. And in a way, that sometimes almost seemed like a Nazi moron a bit to me, because bubbles just don't last that long. I mean, there may be boom and bust cycles over the years, I mean, like tulip bulbs, the South Sea, railroads in the U.S., list goes on and on and on. Gold, though, keeps going up through millennia. And how does that square with your...

It might only be worth of people who wanted to pay. Golf has been a very risky commodity in the past. Remember, remember we had the gold standard, the 30s, 40s and all that. gold wealth prices $35 a fine ounce. And before we got the gold standard, gold prices in the 16th, 70th century were significantly higher than that. So bubbles can last forever.

They have ups and they have downs. And so gold could go on as a bubble for another 6,000 years. But the willingness of people to hold something simply because they believe many other people, including central banks, will view it as a valuable investment instrument, reliable store of value with very much upside and very little downside. No. That doesn't make no sense. So let's get to it then.

I mean, say the U.S. sells its trillions of gold. What should they buy? You said a diversified portfolio, I guess, in various stocks and commodities. Should they just purchase diversified index funds? Is there a case to put some Bitcoin on the central bank balance sheet? I myself consider Bitcoin to be extremely risky investment. I don't think that even in a diversified portfolio, central banks, should invest in it.

Center banks can afford the loss if the price of Bitcoin were to go to zero, even. But this is not something that I think should be part of a well-structed portfolio. The portfolio of the central

bank could include exchange traded funds, holding commodities, stocks, shares, and other financial instruments. So it should just be diversified and without any crazy exposures like gold and Bitcoin. Let's just talk a little more about the world we live in today. The debasement trade is sort of all the rage.

I mean, the U.S. dollar, I think, is down 11% or so far this year. It's had one of its worst. It starts a year in decades. There's easing pressure all across the UK, Eurozone. And in some circles, there is a fear that we might be seeing a transition away from the dollarized economy. And in this period of inflation, that's why people are running to gold. Where do you see the current cycle with relation to golds and with central banks continuing to acquire it? Should they sell right away?

Is there more room to run before they do so? But it's interesting about this debasement. game is that in the past, doubts about the security of the dollar led to flight into other currencies. Now, the euro, sterling, the yen, now, now of course the Rambia, you want, but this particular depreciation of the dollar has been not quite matched, but has been not that much larger than the weakening of other leading currencies. People have doubts about them either the credit worthiness or the inflationary debasement that will come in countries with unsustainable

fiscal situations. The U.S. is one of them, but so is the UK, so is Japan. So are most advanced economies. Even China, when you add in, local government and all that has potentially material public debt challenge which could lead to inflation. In some cases, when the US, if Congress were to fail for it, I think, to raise the debt seeding entire, you would even have a technical default. So you want to be out of that. So the flight into gold is really a goodbye to all leading currency. And the reserve state of the dollar is threatened by social reserve status of most other rival currencies. But I hope and I expect that some fiscal adjustment, fiscal consolidation bill in a lot of this future begin in all countries that need is badly.

And so while I think an inflationary outcome is definite risk for the US, for the euro, for the UK, for Japan, I think it is probably, even if I were to materialize, I wouldn't want to be in gold. I wouldn't want to be in a diversified portfolio of real assets. Or index-linked instruments for that matter is the only serious. inflation, which of course you can cover with indexing instrument, and not default, which of course would affect indexing insurance as well. So even if you are convinced that the dollar will shrink in significance as a reserve currency and as a means of payment for cross-border transactions, there's still the alternative

investment would be a diversified portfolio of real assets, not a single highly risky commodity like... And when you say real quick, when you say real assets, I mean, you're talking about stocks, companies that earn revenues and then also certain commodities as well. You can have commodities in an ETF of a wide range of commodities, including if they were to be traded, claims on rare earth. I'm sure there's somebody working on that. We need to take a very quick break to hear from one of our sponsors, and then we're going to be right back and talk some more.

Finance is the world's number one crypto exchange. Trusted by over 290 million users. With industry leading liquidity, security, and a wide range of digital asset products, finance is the place to buy, sell, trade, and earn crypto. Download Binance today to get started. All right. So one of the things I appreciated about the article and our discussions even before this interview is your openness to Bitcoin and the understanding that it's meant to be a payment system. I want to get your thoughts on how that dovetails in the way that is actually used today, though.

Obviously, it was created to be a peer-to-peer payment system decentralized outside of the, I guess, the breach of any real government. But as I'm sure you're well aware, today the mantra is Hodel, hold on for dear life. Michael Saylor, the personality behind strategy, frequently says, don't sell your Bitcoin under any circumstances. And with supply, the emissions rates continuing to drop, the actual velocity of Bitcoin is falling. What is your sense of that? And then, like, what might need to happen for Bitcoin, regardless of whether or not it goes on a central bank balance sheet, to become, have more of an economy behind it, either talking

about just payments or an emerging trend of what we call it. like BTC fire or like decentralized finance involving Bitcoin. I don't think that Bitcoin as a private fiduciary digital instrument and without anything backing it, other than to believe that it has value, is desirable store of value or means of payment. It's made too volatile. So I'm a great believer in the future of,

of blockchain-based payment instruments, stablecoins, but they have to be free-backed by either central bank reserves or by claims on short-duration treasury debt. And so Bitcoin simply doesn't mean this criteria. There's also, of course, the point which I think never gets mentioned, but that while Bitcoin, the total stock is limited at 20 million units, right? That's why the issuance goes down. There is no reason why we could not simply introduce Bitcoin 2.

Exactly the same program, or Bitcoin 3, 4, 5, 6 and 7. And if people believe that a new Bitcoin is as good as the old Bitcoin, then it will be a massive increase in the aggregate stock of many bitcoins. So the fact that Bitcoin is capped doesn't mean that you cannot create basically identical financial instruments as well. One thing I would say to that effect is, I mean, there must be tens, hundreds, thousands of Bitcoin clones, Bitcoin derivatives. There's various, because all the code, as you mentioned, is open source. It's freely available. I could create Steve coin that has the same emission schedule. You could create Willem coin. But the community surrounding Bitcoin and the hash rate,

the computing power that helps secure the network, all of that has proven to be an insurmountable sort of moat against any potential copycats from trying to, from trying to sort of steal mine share directly away from Bitcoin. So I mean, I've heard that I've heard that return. toward that you've mentioned that people could just create more despite this hard cap limit. But for what it's worth, it really appears that everyone, governments, companies, individuals, they agree that there is a Bitcoin. And then, like, there are other Bitcoin-type products that might try to go after a different use case.

But those are not seen as substitutes in the minds of most. They are not seen as substitutes because they are not seen a substitute. If they were seen as substitute, they would be. So these things are, again, totally mindset-driven valuations. There's nothing intrinsic in Bitcoin that makes it unique or irreproducible. So at some point, maybe not for a century, no, somebody will people think, why, why not? And the why not would divergent.

effectively affect the violation of Bitcoin. But I think not limit this discussion to Bitcoin. Really think that stable coins are likely properly backed to be the finance interest of the future. And I want the authorities to be able to finally agree to interest being paid on stable coins, fully back. Yeah, I agree. And that's the next place I want to take the discussion, because I know one of the things, things I found really interesting when we spoke last week is that in the UK, I think there are movements to try to limit the amount of stable coins that people can hold.

I know lobbyists in the United States on behalf of banks are trying to limit stable coin usage because of fears of suck deposits and then potentially credit out of the banking system. And you pretty forcefully pushed back and said that was ridiculous. So maybe you could just expand on that. There's no doubt that well-designed stable coins, fully backed ones, paying interest, would be competitive with bank deposits. I actually would require bank deposits to be fully backed by central bank reserves or short duration. Of course, they're not. We have to fraction of reserve banking. But let's think that way that would be, so we introduce the stable coins, the technologically superior to bank deposits and people switch to them.

Banks lose deposits. That interferes with financial intermediation, yes, but it doesn't have to because assume the stable coin now is fully backed by central bank deposits. The central bank has to do something with these additional resources issuing. It can simply put the money as long-term investments back in the banks, so they can go into mediation between private agents. They simply take the monetary function out of the banking system. And unless the banks were to create subsidiaries legally distinct, which just issued stable points fully backed by central bank.

bank reserves a short duration treasury. So there's absolutely no fear of finance or chaos, even if stable coins were to cause the complete departure of bank deposits from the bank's balance. The central bank and the government can always put it back into banks if they think that intermediation through the banking sector remains important. One of the questions I I really wanted to ask you, and it kind of extends from what you just spoke about. I mean, there's been a few different ways of creating like a blockchain-based currency. And you've mentioned in each of them. I mean, one, the traditional like fully reserved, a one-to-one stable coin, either backed by dollar in a commercial bank.

I guess technically if those dollars are apothecated, maybe it's not, then there are tokenized deposits which are not fully one-to-one backed. This is interesting, in fact, because our former employer, I worked at the city for, for about a year as well, Jane Frazier, the current CEO, Citi's experimenting right now with stable coins, while Jane Fraser actually said, I think, last week, that she thinks tokenized deposits are a better way to go. J.P. Morgan's also experimenting with tokenized deposits on blockchain by Coinbase. And then you mentioned, like, central bank digital currencies.

As I'm sure you know, those have fallen into disrepute, especially here in the United States, where there's even talk of bills banning the idea of a central bank digital currency because of fears over privacy. Maybe you could just, I'd love to get your thoughts in just those three different categories. Like what are the pros and cons of each?

And then I want to get into privately issued stable coins, potentially paying interest, because that's a very hot topic of discussion in the United States now. Yeah. Tokenized deposits are basically partially

backed stable coins, right? They're on the blockchain, but they just treated from a reserve backing requirement as commercial bank deposits. I consider that undesirable because in the partial backing of bank deposits today and tokenized bank deposits in the future means there's always a risk for bank runs so we have to have no deposit insurance and we have to have the central to stand ready to act as the land of Raswigsaw.

These two major and, I would say, financially unfair sources of support for financial support for the banks, then are matched by tighter regulations to make sure that banks don't go crazy because the deposits are insured and the land of resources there. But so this, we can do away with both deposit insurance and is the need for the central bank to act as the lender's Rassi short in the case of bank runs. And with the restrictive and costly regulations of banks that are the other side of the equation and simply have fully backed bank deposits on the blockchain, preferably in a legally distinct. distinct unit to the bank and that means they would be stable coins. Well, partially backed stable coins are simply a way, because they would be covered in pejorie by deposit insurance and

the land of losses or subsidies. They're simply a way of giving a financial edge to the banks at a cost utterly borne by the taxpayer. So it's undesirable. And CBDC, Centrebank Digital Currency, I think, are desirable. One reason is that if you make them not easily available, on-chain and off-chain, for a CBDC car that you can waive and make payments with. So retail availability, as I said, on-chain and off-chain.

and you also no restrictions on the size of the account or transactions and you allow them to pay interest that they will be superior to coin currency

which could be abolished which would have the advantage of eliminating the lower bound on interest rate. Central banks cannot set interstate meaningfully below zero because the zero interest rates on currency on paper currency that effectively sets the floor and so in the

following the great financial crisis in the themes of this and following the the COVID crisis this should have been able to central bank to set the interest rate the bank rate at minus three or minus four percent couldn't do that so there is to do crazy things that expanding the balance seed by trillions encourage the financial access and speculation So I think CBDCs are an excellent idea that would require doing away with currencies, and that means privacy goes away. But you couldn't have full privacy with CBDCs, but you could have the pseudonymity, right?

That you could have the wallets holding the CBDC being covered by appropriate cryptoproup. protections. So you could still chase, of course, transactions. Just again, the Bitcoin, but you don't know who is the beneficial owner of the wallets that holds. And I've spoken, I mean, I've spoken with congressmen and lawmakers more on the Democratic side because it's almost, it must be universal Republican opposition to the CBDC at this point in the US, where they espouse a lot of the same arguments that you just made. And sometimes, like, I study privacy law, I prior life, mine and I always laugh at how surveilled our financial system is already just by private banks that have to work with the government anyway. So the idea that CBDC is going to introduce

this Orwellian, like, dystopian society, I think sometimes people need to realize how we're already living so far. And truly cash is, I guess, the only real anonymous way of making payments. But yeah, I understand that. One question I do want to ask, there's a growing number of of companies here in the U.S. are trying to get Fed Master accounts so they can interact directly with the Central Bank and not have to look through intermediaries. No one has been successful in getting one yet.

A couple of people have gotten like the Federal Trust Charters, but that's more for just paying, not taking deposits. And a Fed Governor actually, I think last week, suggests an idea of sort of type of Fed Master Lite account to sort of not give full access to some of these crypto companies that like a JPM Morgan or Wells Fargo gets, but let them help disintermediate themselves a little bit. What are your thoughts on crypto, let's say stablecoin issuers directly interacting with central banks, be it the Fed or perhaps like even the Bank of England?

No, no, that's exactly what I mean by having a CBDC, that you and I, and any corporation can have an account with the central. bank with the Fed, say, in this area, or with another central bank. Yes, that's, CBDC is simply a stable coin issued by the central bank, right? So I think it's desirable. It's part of the retail CBDC. The whole sale includes commercial banks themselves. They, of course, haven't already. but I would expand this to any legitimate, well, for the first instance, as a domestic resident, but there's no reason in principle why foreign entities should also not be able to have an account with the central wine. Yeah, that would, of course, compete with this private stable coins, and which one you would use would depend on which one

the better interest rates and which funds more efficient. I believe that progress in the speed, reliability of payments is likely to be greater in the private sector than in the central bank. So I think stable coins issued private entities should still be able to compete with CBDC, which is available retail and wholesale. What do you make of sort of like the growing trend? I mean, now that the Genius Act has passed here in the U.S. all to sort of set the rules for privately issued stable coins,

I mean there's circle, there's tether, there's some like sort of, I don't know if algorithmic is the right term, but there's like things like Athena, but now we're talking about the banks and some of the big box retailers like the Amazon's, the Walmarts, they're kicking tires on their own stable coins. How many stable coins do you think like the world? can support at scale. And who do you think wins? Do you think it's going to be a more neutral party

whose only business is a stable coin, like a circle or a tether? Or is it a world where JPMorgan comes in and launches JPM coin and just dwarfs all of them? Or is it going to be incumbent upon the banks to kind of work together and create a consortium where they have one stable coin that is fungible across all of their different entities?

When these stable coins are fungible, except the issue is, right? At the moment, we can transact between persons having accounts with different banks. There is no reason. Of course, that should not be the case. They're fully backed by central bank money

or short-duration of treasuries, then they should be, you know, generally acceptable and interchangeable. Yes. Again, that a J.P. Morgan, assuming they have to abide by the same rules of having it fully backed stable coin,

no fractional reserve stable coin here. So they work on the same terms as the Amazons of this world or whoever else wants to issue stable coins. I think we could see quite a lot of stable coins. It depends on the magnitude of the fixed costs of setting one up and making it operational for domestic and cross-border transactions. I think these set-up costs could be quite high,

meaning that not too many of them will arise, but that remains to be seen. Of course, it is key here that the stable coins all be able to pay interest at will. All right, so we need to take one more quick ad break and then we'll start to wrap up with a couple of questions looking out. Finance is the world's number one

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Download Binance today and begin your journey into the future of finance. Disclamer, Binance is not available in certain countries, including the U.S., Check its terms for more information. Finance.com slash E.N. slash terms. All right, so we're back. I want to ask you, there's a big FOMC meeting this week. Seems to be a virtual certainty that there's going to be at least at 25. Well, the right good.

Yes, yes. I'm curious. Like, what are your expectations? And I want to get your assessment of the economy because there's a lot of different opinions here. For one, if you're looking at the employment market, maybe there are some concerns. But overall, the economy seems help. So there are those that say it doesn't make sense to be cutting into a strong economy. What do you think?

It's most unfortunate that a number of public sector data on the real economy, labor market production, are delayed because of the government shutdown. But inflation is still running at 3%, both headline and core, which is above target, unless the Fed is surreptitiously changing the actual target to 3%. And it's behavior in the last year. Do you think, I don't mean interrupt, but do you think 3% might be the new neutral rate? Or do you think we're right? I hope not.

But I think it is a risk. While I expect a Fed rate cut with 99% probability, I'm against it. I don't think you should raise rates unless there's evidence that are real economic, especially the labor market, is weakening significantly. And I haven't seen that evidence. The U.S. Treasury has a triple mandate, as you know, a maximum employ. stable prices and moderate long-term interest rates. And at the moment, I think long-term interest rates are moderate, inflation is above target, and employment, as far as we can see,

is still a reason to be strong, although weakening. So to me, the sensible course of action would be to wait, even to raise the policy rate but in her basis point. The last cut was, I think, a mistake. But this central bank must either have a different objective for inflation or have a very different view of the transmission mechanism more the policy if they're going to cut, as they will, now, and no doubt, in the next two meetings as well. It's also, I mean, it's hard to have this discussion and ignore just the immense amount of pressure

being put on a Jerome Powell and the Fed from from Trump and in the White House. I mean, he's he's talking about like two, 300 percent cuts. I mean, the Fed may have cut, may have cut on its own last meeting and it may have been planning to do it again here. But, I mean, putting Stephen Moran on on the FMC, the expectations for who's going to replace Powell next year, it certainly seems like, I guess like, like, you know, Kind of like a long tenet of an independent Fed, I guess ever since like Nixon, that might be a little bit tenuous at this point. So I wonder how much that pressure.

I mean, it's probably hard to insulate yourself from that type of pressure on being put on by the White House. Well, then we'll find out soon whether the president can fire members of the board of God. government. But when the courts rule on Cook's case, it's just allowed to stay on while the dispute was spending. Clearly, if the president, the interpretation of the president's ability to fire board members for a call means that they can be fired for whatever the president wants, then independence would be gone. But Muran, I don't know how independent he is. He kept his...

Yeah, you got to drive at the White House. Well... At the Council of Economic Advisers he just went to unpaid leave for five or six months, I think, about that was

just very bad visuals because you don't want somebody who has still got a job commitment with the federal government to be a board member. But Powell, when he ends his term as shared with him, Bill can stay, of course, as a member of the war until 28. So, and that means that the new governor cannot be somebody appointed instead of if power stays on, as I hope he will.

Of course, there will be, and so for the time being, Trump doesn't have a majority of appointees among the seven governors. And of course, the 12 presidents of the regional reserve banks, five of whom vote at any one time, cannot be sacked or appointed by the president. And they have to be approved, in fact, and can be fired by the board. So as long as Trump does not control the board, he doesn't control the FOMC. Now, would the pressure be so severe that board members would cut me as easy as they think this is not compatible with the mandate? I doubt it. I don't think we're there yet. I just think that the threat is wrong, but not that they've lost their independence.

All right. Great. Well, that's all I had. Do you have any final thoughts? Anything you'd like to say to wrap up our discussion? Not, no, I think that we have to not give up. Despite the political opposition in Washington and elsewhere on retail and wholesale central bank digital currencies, on fully backed stable coins that pay interest, and on enormous future, I see,

for tokenized assets traded on the blockchain, both domestically and cross-border. We're going to have many more participants, potentially, in financial markets than they had as a result of this new decentralized finance world. That creates new risks as well, because some of the new investors will be deeply ignorant. And the tokenized assets are just risky as assets bought and sold. clumsily using conventional means of payment. But I do think that the web and the distributed ledges can really help to democratize finance. All right.

Well, thank you so much for joining us. We'll have to have you back. Goodbye.