A recent study by the Federal Reserve Bank of Minneapolis confuses things by suggesting that Bitcoin could be a thorn in the side of government fiscal policy. Researchers are proposing a bold solution. Either impose high taxes on Bitcoin or ban it completely.
They say Bitcoin poses serious challenges for governments, especially those that maintain a “permanent primary deficit,” meaning government spending consistently exceeds revenue without taking into account debt interest payments.
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In their paper, the researchers argue that because Bitcoin is a decentralized digital currency, it competes with government-issued securities, making it difficult for governments to manage their finances.
“Legally banning Bitcoin could reinstate its own implementation of a permanent primary budget deficit, and taxing Bitcoin as well,” they argue. That's a mouthful, but essentially they're saying that Bitcoin's very existence forces governments to face fiscal realities they want to avoid. It's like pulling a leaky boat while the waves keep crashing.
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As of 2024, the US primary budget deficit is $1.8 trillion, and the national debt is a staggering $35.7 trillion. Researchers suggest this deficit could persist indefinitely unless something like Bitcoin upsets the balance. The paper describes Bitcoin as a “useless piece of paper” that is not backed by real resources.
Although government bonds are not tangible, they influence nominal interest rates, which governments can control through monetary policy. Conversely, Bitcoin is like an unruly guest at a carefully planned dinner, derailing the entire event.
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“Given laws regulating bubble assets in the private sector, it is easy for governments to create policies to implement permanent primary deficits on their own,” the researchers continued, suggesting that Bitcoin could be left unchecked. He hinted that this could upset the delicate balance of the fiscal deficit. financing. They suggest that sufficiently high taxes may be sufficient without resorting to an outright ban.
