The Federal Reserve Bank of Minneapolis has sparked controversy with the release of a paper advocating for the ban or taxation of Bitcoin in order to maintain primary deficits. The working paper, titled “Unique Implementation of Permanent Primary Deficits?” by researchers Amol Amol and Erzo G.J. Luttmer, argues that governments should take action against Bitcoin to ensure the sustainability of their deficits.
According to the paper, Bitcoin is seen as a “balanced budget trap” that hinders governments from maintaining their deficits due to its decentralized nature. The researchers suggest that Bitcoin, being a fixed-supply “private-sector security” without real resource claims, should either be banned or taxed to address this issue.
The concept of a primary deficit occurs when a government spends more money than it generates through taxes and other revenues. By adding the term “permanent” to primary deficit, it signifies that the government intends to continue spending more than it has in its budget.
Matthew Sigel, head of digital asset research at VanEck, views the paper as an attack on Bitcoin, suggesting that it implies governments can only run permanent deficits if consumers do not adopt new forms of money like Bitcoin. Sigel also referenced a post by Bitcoin analyst Tuur Demeester criticizing a research paper by the European Central Bank that proposed regulating or banning Bitcoin to prevent its price from rising.
The paper has stirred debate within the cryptocurrency community, with some viewing it as a threat to the decentralized nature of Bitcoin and others questioning the feasibility of implementing such measures. As the discussion around Bitcoin and government regulation continues to evolve, it remains to be seen how policymakers will respond to the Minneapolis Fed’s recommendations.