Although cryptocurrency especially bitcoin was created to avoid central bank and government money, the technology behind bitcoin can be used as a national, central bank currency.
Cryptocurrency vs Traditional Currency
In contrast to the traditional currency, which has a value established by the central bank, bitcoin is driven by speculation about its value as a share.
Bitcoin offers something innovative, and an increasing number of national banks, including the fed, are interested in using blockchain technology to power a centralized national currency.
American intermediaries – including TD Ameritrade, which was the first to allow its customers to trade Bitcoin futures in the united states – are also at risk of credit losses when Bitcoin forwarding customers are unable to meet their margin calls and their positions. Since non – banking financial institutions generally have more flexibility than banks; they are both more competent and more vulnerable to cryptocurrencies and bitcoins as a new instrument.
Non – banking financial institutions, in particular, the FMI ( FMI ), have some protection against revenues from the usual, standardized process of raising funds, which usually require coordination between insurers, investment banks, and regulators.
Many central banks are looking closely at cryptocurrencies and exploring the potential for the creation of a cryptocurrency supported by the central bank.
The Financial Group of Mitsubishi UFJ, Inc. ( MUFG ), the Japanese Financial Group, announced plans to launch a cryptocurrency currency linked to the Japanese yen, and Venezuela has already launched a national cryptocurrency called the ‘PETRO‘.
Cryptocurrency Regulation
Banks have called for regulation in the cryptocurrency space to level the playing field between equities and equities.
As banks want to curb the growth of the cryptocurrency market, it is in their best interest to see as stricter rules as possible. However, banks have been hostile to cryptocurrency investors and, at the same time, have been looking for ways to earn money from the development of cryptocurrency. Such an institutional investment could be an essential step in stabilizing the cryptocurrency market.
Central Bank Digital Currency
One way to alleviate the above problems could be to create a brand new Central Bank digital currency payment system based on the same logic as cryptocurrencies.
The opening of the service to different vendors would have the most significant impact on banks, but the limitation to the Central Bank will also deprive banks of the profits from processing transactions due to the withdrawal of the fiat currency up to the Central Bank Digital Currency.
Cryptocurrencies are digital currencies that use encryption techniques to regulate the generation of currency units and to verify the transfer of funds. Cryptocurrencies are independent of central banks, and the risk that they will infiltrate traditional financial systems, which expose them to a potential bubble, is a sign of regulators ‘eyebrows.
If cryptocurrencies become an asset class, the impact on financial services companies will be more gradual.
After all, cryptocurrencies do not benefit from cash flow support or a credible central issuer, which would give it an intrinsic value.
Implementation:
If cryptocurrencies were to rise and become an effective currency, the impact on the implementation of the monetary policy would be significant, as central banks could lose control over the supply of money.
Every time retail investors finance their purchases of cryptocurrencies with credit cards, a deterioration in the credit rating of customers after a fall in cryptocurrencies could lead to an increase in crime rates.
However, even among cryptocurrency promoters, recognition of the role of the state as an enabler rather than a limit is now evident in efforts to obtain SEC approval for exchange-traded funds ( ETFs ).
There are real concerns, even with new regulations after the crisis, the conditions for financial institutions to fuel another crisis ( which could worsen cryptocurrency markets ) are still being left behind.
Digital currency technology has just created a new way for public funds and a state payment system independent of banks and their risk of default. Households and businesses would be attracted by the expected returns of private sector cash, including cryptocurrencies, only to try to raise public security funds during a crisis.
Firstly, if transactions in the new currency are common, it may be impossible for the central bank to find the appropriate intermediate objectives for its monetary policy.
Secondly, as private individuals, companies and potential financial institutions are raising their shareholdings in the new currency, the financial system may be less stable unless the central bank can find ways to stabilize liquidity in the currency. Alternatively, central banks could also use cryptocurrencies, perhaps using decentralized and near-anonymous technology to imitate and replace bills.
