Lawrence Damilola
A recent Federal Reserve Bank of Minneapolis paper proposes that assets like Bitcoin should be taxed or banned to help governments manage permanent deficits.
The paper, published last Thursday, argues that in an economy where the government relies on nominal debt to maintain permanent deficits, Bitcoin poses challenges for policy implementation. The researchers claim that Bitcoin (BTC) introduces what they describe as a “balanced budget trap,” where the government is forced to balance its budget, disrupting its ability to sustain a permanent deficit.
The paper uses Bitcoin as an example of private-sector security with a fixed supply and no real resource claims, concluding that banning or taxing the asset could solve this problem. “A legal prohibition against Bitcoin can restore unique implementation of permanent primary deficits, and so can a tax on Bitcoin,” the report stated.
The United States, which has a total national debt of $35.7 trillion, currently faces a primary deficit of around $1.8 trillion. A recent Reuters report pointed to a 29% rise in interest costs for Treasury debt, which reached $1.13 trillion, as a key factor contributing to the fiscal 2024 deficit. The Federal Reserve paper suggests that regulating Bitcoin could help governments manage these fiscal challenges.
ECB Report Claims Bitcoin Wealth Transfer Favors Early Investors
In a separate development, a European Central Bank (ECB) report claims that Bitcoin’s structure disproportionately benefits early investors at the expense of newer market entrants. The paper argues that Bitcoin’s limited supply and decentralized nature have created a system in which early holders can sell at a profit, leading to what the authors describe as an unfair transfer of wealth.
The same report suggests that strict price controls or an outright ban on Bitcoin could prevent this perceived wealth transfer. The authors also raised concerns about Bitcoin’s use in illegal activities but noted that fiat currencies remain the most common means of facilitating illicit transactions.
Jürgen Schaaf, an adviser to the ECB’s Senior Management, echoed the paper’s findings. On Oct. 20, he wrote on social media, “Non-holders should recognize that Bitcoin’s rise is fueled by wealth redistribution at their expense,” and advocated for policies that could either limit Bitcoin’s growth or eliminate it entirely.
Despite these criticisms, interest in Bitcoin continues to grow. A survey by Charles Schwab revealed that 45% of U.S. investors plan to invest in cryptocurrencies through exchange-traded funds (ETFs) in the coming year, with growing demand among millennials.
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Lawrence does not hold any crypto asset. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
