30s Summary

A paper on the Federal Reserve Bank of Minneapolis’s website suggests that Bitcoin could force the US government to balance its budget, provoking varied reactions. The government could avoid the potential fiscal discipline by banning or taxing the cryptocurrency. Critics argue that the government’s spending habits, rather than Bitcoin, should change, and doubt the feasibility of a potential Bitcoin ban. The paper also noted the potential of Bitcoin as a safeguard when individuals expect their assets to depreciate. Other currencies, such as the Euro or Yen, could also impose fiscal limits on the US government.

Full Article

Who would think that Bitcoin could make the US government tighten its belt? Well, a new paper on the website of the Federal Reserve Bank of Minneapolis suggests that Bitcoin, or a similar digital currency, could make the government have to balance its budget. This likely wouldn’t be popular with those in power who like having the freedom to splash out when emergencies hit, like the recent pandemic or when the economy takes a dive.

So, how might the government avoid having to balance its budget? It could either put a stop to Bitcoin or impose a tax on it, according to the authors of the paper. This would probably annoy a lot of the crypto crowd. The paper took some people by surprises, and provoked a variety of reactions, questioning its feasibility and the power of Bitcoin.

Some argue that Bitcoin doesn’t have the power to force the US government to balance its budget and that it’s the government’s spending habits that need to change. The idea of banning Bitcoin to safeguard the government’s spending options was also contemplated. While it would be tough to completely eliminate the use of Bitcoin, a government could still limit its use and therefore its appeal.

The fact that this paper was on the website of the Federal Reserve Bank of Minneapolis drew attention, but the views of the authors may not reflect those of the Minneapolis Fed or the larger Federal Reserve.

If something like Bitcoin exists, the government might be unable to run a permanent primary deficit, or spending more than it earns, ignoring interest payments. Bitcoin can act as a lifesaver for people when they expect their assets to depreciate, the researchers hinted.

Can a government really ban a cryptocurrency that’s being used in nearly all countries across the globe? It seems almost as impossible as banning the internet. But if a ban happened in the US, it could make waves even in countries outside its jurisdiction.

On the other hand, it’s not just Bitcoin that potentially restricts the US government’s spending habits. Other currencies, like the Euro or Yen, can also impose limits. And if you want to eliminate all the alternatives, you need to ban them all. But that might be harsh and most governments don’t prohibit their citizens from holding foreign currencies or cryptocurrencies.

As always, the debate rages on between those who want to force the government to balance its budget and those who oppose such drastic measures.

Some loathe the paper, arguing that it’s blaming Bitcoin for the government’s problems. However, it does show that there’s a limit to the dollar and that even a small threat like Bitcoin could endanger it. This might serve as a heads up to the crypto industry about where future resistance to Bitcoin might come from. Let’s wait and see.