The Minneapolis Federal Reserve recently expressed its opposition to bitcoin (BTC), suggesting a “legal ban” on the world’s largest digital currency. This position adds to the criticism of the European Central Bank (ECB), which had already pointed out BTC as potentially “harmful to society.”
In a working document prepared by Amol Amol and Erzo Luttmer, research analyst and visiting scholar at the Federal Reserve Bank of Minneapolis, Bitcoin is described as “a useless piece of paper” that can be traded.
According to analysts, this characterization is based on the argument that BTC interferes with the government’s ability to implement a permanent primary deficit through Nominal debt and Markov strategies for deficits and payments to debt holders in economies with incomplete markets and risk-averse consumers.
Nominal debt refers to the amount of money that a debtor must pay the creditor, expressed in current monetary terms without adjustments for inflation. That is, it is the amount of the debt in the original currency in which it was contracted, without taking into account the decrease in the purchasing power of money over time.
On the other hand, Markov strategies, in the context of economics and fiscal policy, refers to the use of Markov models for forecasting and managing economic variables.
A Markov model is a mathematical tool that describes a system that moves from one state to another in discrete steps, where the probability of transition to any future state depends solely on the current state. This is known as the Markov property.
The paper explains that, if bitcoin is used as a medium of exchange, there is no continuous Markov strategy that allows the government to maintain a single primary deficit. Instead, a continuum of equilibria with different real allocations emerges where the price of BTC tends to zero.
Furthermore, the concept of a “balanced budget trap” is introduced: government policies designed for a permanent primary deficit cannot avoid a steady state in which the difference between the real interest rate (r) and the economic growth rate (g) is zero, forcing the government to balance its budget.
To solve this problem, analysts They propose that a legal ban against BTC could restore the one-time implementation of permanent primary deficits. Alternatively, they suggest a tax on bitcoin at the negative rate of (r – g), which could also achieve this goal.
This criticism aligns with the observations of the ECB, whose analysts recently classified bitcoin in a document as a “harmful” financial asset. As reported by CriptoNoticias, the ECB argues that, if the alleged bitcoin bubble bursts, significant damage could be caused, which is more worrying due to its continuous increase in value, since this could encourage a distortion in consumption and prices.
Bitcoin, a useless paper?
However, it is important to clarify that, for many people in the world, bitcoin is not “useless paper.” Unlike the US dollar, bitcoin is considered a valuable asset because it offers a number of advantages. For some members of the ecosystem, decentralization gives bitcoin unprecedented transparency and security, providing users with full control over their transactions and assets. Furthermore, by not being subject to inflation generated by a central bank’s monetary policy, BTC represents a form of savings and value because it does not devalue over time.
In this context, far from being “harmful”, bitcoin can be seen as an improvement for society. It offers an alternative to traditional financial systems, promoting financial freedom and reducing dependence on intermediaries. This autonomy allows individuals and companies to operate with greater independence and efficiency.
Bitcoin, despite being under attack by a division of the US Federal Reserve and the ECB, has become a key electoral issue in the upcoming November elections.
Both Donald Trump and Kamala Harris, who will face each other at the electoral polls on November 5, have sought to get closer to the cryptocurrency sector, recognizing their growing influence on the economy and politics.
Trump has promised policies in favor of the sector, while Harris has sought to show openness towards the community by promising greater investment and even a regulatory framework that benefits African Americans, as reported by CriptoNoticias, reflecting the importance that these digital assets have gained in the electoral landscape. and American financier. significant for economic and social stability.
This article was created using artificial intelligence and edited by a human Editor.
