What would happen if the Federal Reserve disappeared? Thomas Massie’s Plan to abolish it

U.S. Congressman Thomas Massie has reintroduced the Federal Reserve Board Abolition Act (HR 1846) to eliminate the Federal Reserve. He argues that the Fed is responsible for devaluing the dollar and increasing inflation by monetizing government debt. His proposal aims to shut down the central bank within a year and return control of money to the market.

But what does abolishing the Federal Reserve actually mean? Is it possible? What would happen to the economy if the central bank disappeared?

Why does the Federal Reserve exist?

The Federal Reserve was created in 1913 after a series of banking crises exposed the fragility of the U.S. financial system. Its initial purpose was to ensure monetary stability, prevent bank collapses, and regulate the issuance of money. Over time, its power expanded, making it the central authority controlling the country’s monetary policy.

The Fed issues dollars, regulates the banking system, sets interest rates, and buys government debt. In theory, its mission is to stabilize the economy, but in practice, many accuse it of being the main cause of inflation and enabling massive government debt.

1971: the end of gold-backed money

One of the key moments in Federal Reserve history occurred in 1971, when President Richard Nixon ended the gold standard, eliminating the dollar’s convertibility to gold. Until then, every dollar issued had a physical gold backing, ensuring that money represented real value based on industry and labor.

From that point on, the dollar and all other currencies became fiat money, meaning money with no tangible backing, relying solely on trust in the government and the central bank. This allowed the Fed to print unlimited amounts of money, which has progressively eroded the dollar’s purchasing power and led to recurring inflation crises.

Massie and other critics argue that since 1971, money has ceased to represent real wealth and has become a tool of economic manipulation that benefits the government and banks at the expense of ordinary people.

Massie’s argument: why abolish the Fed?

Massie contends that the Federal Reserve has done more harm than good. He believes inflation is not a natural phenomenon but rather a consequence of uncontrolled money printing to fund government spending. The more dollars are printed, the less people’s savings are worth.

He also claims that the Fed has enabled reckless government spending. By purchasing public debt, it allows for massive deficits that would otherwise be unsustainable. This has led to an unsustainable national debt and distorted financial markets by inflating bubbles in assets such as real estate and stocks.

According to his proposal, if the Fed were abolished, the market would naturally determine the supply and demand for money, preventing distortions caused by government intervention. His bill proposes dismantling the Fed within a year and transferring its functions to the Treasury Department and market forces.

What would happen if the Fed disappeared?

Eliminating the Federal Reserve would completely transform the U.S. and global financial system. One immediate consequence would be increased market uncertainty, as the Fed acts as a lender of last resort. Without it, banks would have to operate with much greater discipline and could no longer rely on bailouts during crises.

Money supply would be left to the market, eliminating uncontrolled dollar printing. This could reduce inflation in the long term but also trigger severe economic adjustments in the short term.

The dollar would lose its “artificial backing” provided by confidence in the Fed. If the government could no longer issue debt supported by the central bank, it would have to drastically cut spending or find alternative financing methods.

On the other hand, the Fed’s disappearance could strengthen monetary alternatives such as gold and Bitcoin, as people would seek reliable stores of value in a world without inflationary money.

Impact on Bitcoin

If the Fed disappeared, Bitcoin could emerge as one of the leading monetary alternatives. Without a central bank controlling the money supply, more people would turn to a decentralized and inflation-resistant currency.

In 2020, when the Fed printed trillions of dollars in response to the pandemic, Bitcoin became a hedge against dollar depreciation. If fiat money loses even more credibility, Bitcoin adoption could accelerate.

A world without the Fed would be a world where money is once again based on scarcity and real value. Bitcoin, with its limited supply and decentralized nature, could become the de facto monetary standard in a system free from government manipulation.

Can Massie succeed?

Despite support from several Republican congressmen, abolishing the Fed is nearly impossible in the short term. Wall Street, big banks, and the government itself depend on the current system and would do everything possible to block any attempt to eliminate the central bank.

Congress and the Senate are unlikely to approve such a measure. The Fed has too much influence in politics and the global economy to disappear overnight.

However, the fact that this proposal is being discussed again reflects a shift in public perception. More people are questioning the role of central banks and seeking alternatives outside the traditional system.

Conclusion

The abolition of the Federal Reserve is unlikely in the near future, but Massie’s proposal sparks a debate about the viability of fiat money and the role of central banks. Since 1971, the dollar has lost its connection to real wealth and has been used as a tool of economic manipulation.

If the Fed disappeared, control over money would shift to the market. In that scenario, Bitcoin would become the natural choice for those seeking a currency based on solid principles, free from inflation and government control.

The debate is open, and while the Fed remains in place, its legitimacy is increasingly being questioned.