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Could Banning Bitcoin Help Governments Tackle Budget Deficits?

Could Banning Bitcoin Help Governments Tackle Budget Deficits?

Researchers at the Federal Reserve Bank of Minneapolis suggest that a government can maintain a "permanent primary deficit" by imposing a ban or tax on Bitcoin (BTC).

They present a hypothetical economy where the government issues stock and pays dividends.

In this model, if government stock serves as the numeraire, the price level reflects consumption in terms of this stock, while the nominal interest rate corresponds to the dividend yield. Holding government stock functions like a nominal bank account with interest from the Treasury.


READ MORE: Tesla Likely Retains $780 Million in Bitcoin After Recent Wallet Transfers


Bitcoin symbolizes a private sector asset with a fixed supply and no claim on real resources. The study argues that to finance government spending, a policy of high consumption taxes would maximize economic utility and growth, resulting in substantial permanent surpluses.

This approach would effectively convert government stock into a large Lucas tree, mitigating most idiosyncratic risks. However, high consumption taxes may be impractical, making a permanent primary deficit a viable alternative, especially if the economy can achieve a stable state. The researchers conclude that, even without an outright ban, the government could employ a continuous Markov policy alongside a Bitcoin tax.

Author
Alexander Stefanov

Reporter at CoinsPress

Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.

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