It is universal fact that we witnessed global financial crunch during 2008-09, the recession struck all most all major markets (and especially, Bond/treasury markets). That’s when the discovery of Bitcoin has caused many to reassess the value of centralized banking institutions in order to get rid of this financial obstacle.

Dong He, deputy director of the IMF’s Monetary and Capital Markets Department, divulged his analysis and stances on how the mainstream adoption of cryptocurrency could affect central banks and monetary policy.

He ponders that Bitcoin and other cryptocurrencies’ price volatility is remarkably extraordinary because its value is predominantly driven by speculation, as diverging to the performance metrics like transaction volume etc.

He further adds by stating - “Unlike the value of fiat currencies, which is anchored by monetary policy and their status as legal tender, the value of crypto assets rests solely on the expectation that others will also value and use them. Since valuation is largely based on beliefs that are not well anchored, price volatility has been high.”

Once scalability issues within the Bitcoin Blockchain are resolved, then there could be more likelihood of the digital currency being transacted for the regular medium of exchange which could lead to mainstream acceptance and give it a more accurate and stable valuation.

He argues that “unlike bank transfers, crypto asset transactions can be cleared and settled quickly without an intermediary. The advantages are especially apparent in cross-border payments, which are costly, cumbersome, and opaque. New services using distributed ledger technology and crypto assets have slashed the time it takes for cross-border payments to reach their destination from days to seconds by bypassing correspondent banking networks.”

As for whether this technological shift can truly affect monetary policy?

He trusts that the central banks typically conduct monetary policy by setting short-term interest rates in the interbank market for reserves (or clearing balances they keep with the central bank). Ceasing to be the monopoly supplier of such reserves would indeed deprive central banks of their ability to carry out monetary policy.

Hence, it has been crystal clear that central banks are susceptible by the likelihood of dropping their influence over monetary policy to a more decentralized system. The recommendation for increased regulation as a way to prevent an “unfair competitive advantage” is precisely what some in the crypto space think the SEC is doing.

Please be informed that the irony of central banks which have relished over 200 years of dominance, now crying foul about a 10-year-old system having a competitive advantage.

Ultimately, it would be wise for banks to focus less on stifling innovation, and more on embracing it to improve the current state of fiat currencies. However, at this point, it’s unclear whether the goal of a fairer central banking system is simply too little too late.

Currency Strength Index: FxWirePro's hourly BTC spot index is inching towards -9 levels (which is neutral), while hourly USD spot index was at 50 (bullish) while articulating (at 14:05 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

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