Minneapolis Fed releases working paper pushing for Bitcoin ban or tax to maintain deficits

The Federal Reserve Bank of Minneapolis recently released a working paper that suggested governments should ban or tax Bitcoin in order to maintain primary deficits.

In a working paper recently published by the Minneapolis Feds on Oct. 17, governments are urged to either legally prohibit the trade of Bitcoin (BTC) or enact a Bitcoin tax if they want to maintain their permanent primary deficits. The views expressed in the paper are the views of the authors, not the Minneapolis Fed or the Federal Reserve System.

“A legal prohibition against bitcoin can restore unique implementation of permanent primary deficits, and so can a tax on bitcoin at the rate,” stated in the abstract of the working paper titled “Unique Implementation of Permanent Primary Deficits?” by Amol Amol and Erzo G.J. Luttmer.

Within the 40-page working paper, Bitcoin is labelled as a “balanced budget trap,” defined as an alternative state where the government is forced to balance its budget. This is because the Fed sees Bitcoin’s decentralization as an obstacle for policy implementation, especially for governments aiming to maintain their permanent deficits using nominal debt.

The researchers called Bitcoin an example of a fixed-supply “private-sector security” without “real resource claims.” Therefore, they propose that Bitcoin should be banned or taxed to resolve this issue.

A primary deficit occurs when a government spends more money than it holds in the form of taxes and other revenues. Adding the term “permanent” to primary deficit indicates that the government intends to keep spending more money than it has in the budget.

Head of digital asset research at VanEck, Matthew Sigel, views the working paper published on Manhattan Fed as an “attack on Bitcoin.”

According to Sigel, the paper indicates that governments are able to run permanent deficits if consumers “don’t notice & adopt new money like BTC.”

He also quoted a post from Bitcoin analyst Tuur Demeester criticizing an Oct. 12 research paper by the European Central Bank that claims older Bitcoin holders gain profit off of newer holders. The paper argued that Bitcoin should be regulated to prevent its price from rising or banned outright.

“[The paper] fantasizes about ‘Legal Prohibition’ and extra taxes on BTC to ensure govt debt remains ‘Only Risk Free Security,’’” Sigel wrote in an Oct. 21 X post.