Can Central Banks be Taken Over by Digital Currencies?

  • March 30, 2021
  • Jennifer Moore
Can Central Banks be Taken Over by Digital Currencies?

Bitcoin refers to a digital currency that leverages peer-to-peer technology for operating with no Central banks or authorities. However, the recent hype about Bitcoin being well-positioned enough to kill off Central banks has been around for quite some time. Similar to everything related to finance, Central banks along with their potential replacements happen to be complicated with legitimate arguments for and against. In this article, we will find out whether or not Bitcoin can kill Central banks.

Central Banks from a Positive Perspective

The new digital age seems to be aiming at Central banks. Let us understand this by tracing back to the first Central Bank. The first Central Bank traces back to Barcelona Spain during 1401, thereby helping Nations fund wars and additional government-supported initiatives. The British revamped the modern concept of Central banking in 1844 with the Bank Charter Act. It happens to be a legislative effort laying the groundwork for institutions that had monopoly power for issuing currency. 

These days, modern Central banks play a significant part in the financial industry. The US Federal Reserve helps stabilize the financial systems during times of crisis, manages stable prices and full employment, helps oversee the payment systems of the nation, assures soundness and safety of the banking and financial system of the nation, and allows consumers to access credit. 

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The Economy Example

If the overall economy appears to be developing too quickly, causing the goods and service prices to increase rapidly, thereby becoming unaffordable. In this case, the role of Central banks comes into existence. In this case, a central bank can enhance interest rates. Moreover, it makes it pretty much costly for borrowers to access money. 

As money exists on electronic balance sheets, the authority cannot make it disappear over a fortnight. While decreasing the money amount in circulation might lead to price falls, it simultaneously makes it pretty challenging for businesses to borrow money. Along with that, such businesses might turn out to become cautious and willing to choose new workers and investment options.

What Happens in the Case of a Failing Economy?

In case, the economy does not happen to be developing quickly enough, Central banks can decrease the rate of interest, thereby creating money. Decreasing the rate of interest makes it pretty expensive, hence more appealing and easier for consumers and businesses to borrow money.

Along the same lines, Central banks can also enhance the money amount banks have in repositories for lending. Central banks further can engage in extra efforts to manipulate economies. Such efforts incorporate the purchase of bonds on an open market with an aim to generate a demand for them. 

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Central Banks From a Negative Perspective

Problems associated with the global and national economy set the stage for arguments. Therefore, such economies happen to be pretty unpredictable to remain successfully maintained by the kinds of banks’ manipulation. It helps in Bitcoin-style peer-to-peer currency implementation, thereby eliminating. Moreover, banks these days have remained the subject of controversy from their inception. Read on to find more.

Reasons Behind Central Bank Controversies

The reasons for Central Bank controversies are varied and wide. On one hand, the monopoly power conception profoundly happens to be disturbing to various people.

On the other hand, the existence of an opaque and independent entity, that comes with the power to manipulate economies, is further disturbing. Various people anticipate that Central banks come with enormous ramifications. Therefore, make mistakes affecting the lives of citizens. 

Such mistakes incorporate increases within the monetary supply. It happens by hurting consumers and creating inflation by increasing goods and services prices’ they purchase. Apart from that, the implementation of the increased rate of interest, formulation of policies, keeping inflation low, and creating asset bubbles in bonds, stocks, and real estate are some other mistakes.

Central Banks No Longer Seem to Be Necessary

In this technological age, when consumers can engage in commerce without the requirement for a central authority, Central banks are no longer necessary. The explanation is simple by a broader examination. 

Corruption linked with the system of Banking results in great recessions along with a host of scandals. Such a thing happened earlier which led to bankers causing great angst in various Nations including Greece. 

Many companies pinpoint for fostering benefits over people. Furthermore, if you consider at the local level, bankers happen to make billions of dollars. They do it by helping as an intermediary in transactions between people. In the new age technological environment, eliminating the whole banking system happens to be an appealing concept to various people.

Final Words

Presently, Central banks happen to be the dominant structure that countries use to maintain their economies. While Bitcoin along with additional digital cryptocurrencies has generated notable interest, the rate of adoption happens to be minuscule. Moreover, the support from the government for them happens to be virtually non-existent. 

Unless governments happen to recognize Bitcoin as an authoritative and legal currency, the hopes of killing off Central banks are quite skeptical. Global Central banks happen to be studying and watching Bitcoin. Since metal coins are costly to manufacture, one can expect that Central banks might issue digital currencies of their own.

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