Central Banks and Bitcoin
A country's Central Bank is responsible for overseeing the monetary system of their corresponding nation. Central banks have specific goals, such as currency stability, low inflation, and full employment. These roles have a very significant importance to the financial wellbeing of a nation. To ensure the stability of a country's currency, the central bank is the regulator and authority in the banking and monetary systems.
Under normal conditions central banks are government owned but held separate from their country's department of finance. The central bank is frequently named the government's bank because it handles the buying and selling of government bonds and other instruments. Political decisions from the central government should not influence any operations of the central bank. The nature of the relationship between the ruling regime and central bank varies from country to country and continues to evolve with time.
To main functions of a central bank are macroeconomics and microeconomics.
Macroeconomics is used to regulate inflation and price stability. This is done by regulating the level of inflation by controlling the money supply through monetary policy. The central bank performs open market transactions that inject the market with liquidity or absorbing extra funds. This will directly affect the level of inflation. To increase the amount of currency in circulation and also decrease the interest rates for borrowing, the central bank can buy government bonds, bills or other government issued notes. On the other hand this can however lead to higher inflation. To counter this, the central bank will absorb money to reduce inflation and also sell government bonds on the open market; this in turn increases the interest rates and discourages borrowing. Using open market operations gives the central bank key tools that help them control inflation, money supply, and prices.
Microeconomic pushes central banks into the position of lender for commercial banking. Commercial banks provide to its clients funds on a first come first serve basis. Normally commercial banks do not have enough funds in reserve to handle all of the client's needs so it turns to the central bank to borrow funds as needed. This provides stability in the banking system by not showing any form of favorability to any one commercial bank under the central banks control. Many central banks will hold commercial bank reserves based on a ratio of commercial banks deposits. The central bank requires all of the commercial banks under its control to keep a 1:10 reserve to deposit ratio. Enforcing a policy of commercial bank reserves provides another tool to control the money supply in the market.
Nine years since the birth of bitcoin and cryptocurrencies, central banks around the world are recognizing the potential upsides and downsides of digital currencies. They are being forced to face two issues that have entered into the global economy. First is what to do about the growth of private cryptocurrencies that are raising market awareness. This market awareness is raising massive security concerns after hacking of major exchanges has caused major losses for consumers and advocates. Second do central banks think it is a good idea to issue their own official cryptocurrency?
Around the world central banks are taking different approaches to the cryptocurrency phenomenon. We have decided to find out what exactly is the official standpoint of all central banks. Check out the different regions and see what the legal and monetary ramifications are for cryptocurrencies.