A modern economy consists of two kinds of money: the base money available on the balance sheets of the banks and the money generated by bank credit. A bank is capable of multiplying money by giving out loans to potential large-scale ventures. Previously, most of us did not have a clear understanding of the workings of the bank. With time, the system is reaching a nearly transparent state. The media and internet keep everyone well informed of all the policies being undertaken.
Under such a scenario, the sudden rise in cryptocurrencies is alarming. The decentralized nature of the currency eliminates the intermediary role of the banks. It renders the users and investors unanswerable to the government or any other financial institutions. With the arrival of Cryptocurrency, world monetary policies have received a huge blow. The central banks are rethinking their policies with an aim to strengthen the financial conditions of the nations.
Improvements Necessary in Central Banks
Bitcoin and other cryptocurrencies have made a place for themselves without the support and authorization of the governments. It has only been possible due to the immense contribution of Blockchain technology. Most banks have not adopted technological advancements. If the central banks of the nations adopt Blockchain technology following the cryptocurrencies’ lead, it will make their functions smoother and hassle-free.
It would also make fiat currencies more luring to the citizens. The banks should also upgrade their system to make online transactions more efficient. Even in developing countries, banks are staggering behind when there is a need for online transactions.. Most of these banks face server problems, thus causing everyone huge inconvenience. In a world where most people like to travel cashless. If the online banking system and card system fail us during one such time, it will be a lot of trouble.
Using the public ledger technology, it will be easier to maintain transparency at all levels. This would prevent not only scams and thefts but also corruption at each level. The banks need not give up their intermediary role, but holding people responsible to keep a check on this would free them of certain burdens. This would optimize their efficiency.
Improvements Required in Bitcoin
Bitcoin was created with a cap on its availability. This was supposed to keep the value in check. As the number of Bitcoins being mined keeps increasing, its value increases. This increases its demand, and more investors rush in to invest. This leads to a further increase in its value. Like this trading bot will provide great insight regarding the same.
The advantage that Cryptocurrency faces is that there is only inflation. This inflation is not a result of the market forces or a reflection of the value of the American dollar. If Bitcoin is given some more time to stabilize its current situation, its value will not be as volatile as it is now. This will widen its range of acceptance worldwide. Cryptocurrency also provides hassle-free transactions across the border which is an alarming concern with bank transactions.
With the raging success of Cryptocurrency in recent years, the demand for fiat currency has a chance of declining. This could be the time to bring about a change in the monetary policies by introducing cryptocurrencies by the Central banks. Once such a thing is adopted, the banks acting as the mediators between the citizens and the central banks will be redundant. The citizens will directly get in touch with the Central bank, and be benefited from the cryptocurrencies issued by it.
This way, the central banks can mold the monetary policies of the nations in such a way that the rise of the decentralized cryptocurrencies does not hamper the financial condition of the government. The demand and supply of the fiat currencies have to be regulated by the
Central Banks in this case.