Key Takeaways
- Minneapolis Fed suggests banning or taxing Bitcoin to help manage deficits.
- Bitcoin's fixed supply creates challenges for governments aiming to maintain permanent deficits.
- The U.S. national debt is at $35.7 trillion, with an annual primary deficit of $1.8 trillion.
A research paper from the Federal Reserve Bank of Minneapolis recommends that governments tax or ban Bitcoin to help manage permanent budget deficits. Released on October 17, the paper argues that Bitcoin introduces a “balanced budget trap,” which prevents governments from running deficits using nominal debt.
Bitcoin, categorized as a private-sector asset with a fixed supply and no claims on real resources, complicates deficit management, according to the paper. Researchers concluded that a ban or tax on Bitcoin would solve this issue.
The paper stated:
A legal prohibition against Bitcoin can restore unique implementation of permanent primary deficits, and so can a tax on Bitcoin.
The U.S. government currently faces a national debt of $35.7 trillion, with an annual primary deficit of $1.8 trillion. Rising interest costs, which saw a 29% increase to $1.13 trillion in fiscal 2024, have exacerbated this deficit, Reuters reported.
Commenting on the paper, VanEck’s Matthew Sigel noted that the Minneapolis Fed has joined the European Central Bank (ECB) in calling for actions against Bitcoin. Meanwhile, the ECB has also advocated for stronger regulations or a potential ban on Bitcoin to curb wealth redistribution at the expense of non-holders.
