Dear all Publish0x people :)
I have written a policy paper for African Institute for Decentralised Finance and Blockchain (AIDBLOCK) regarding cryptocurrencies and international financial institutions such as the IMF, BiS, and G20.
At the moment, I am in the process of finalizing a new paper focusing on crypto and public monetary policies regarding central banks, governments, and CBDCs.
Bitcoin was created partly due to dissatisfaction with central banking and its discretionary monetary policy following the 2008-2009 financial crisis. So from the start, the original idea of decentralizing money via cryptocurrencies is to create alternatives and even replace public banking and money systems.
For example, the 1862 Legal Tender Act declared US dollars must be accepted for all public and private debts. Instead of paying with gold coins, one could use dollars which might be devalued over time. This act was designed to ensure the acceptance of central bank-issued money. Legal tender laws give central bank currencies a monopoly advantage.
This monopoly is being challenged by digital currencies, like how Uber challenged traditional taxi systems. For example, in New York City, the Yellow Taxi Cab, once the gold standard and government-sanctioned transport, was upstaged by Uber, an alternative that people came to prefer. Governments eventually adjusted, no longer exclusively favoring traditional taxis.
Central banks currently don't see digital currencies as immediate threats. However, these alternatives could force central banks to change their operations, especially if people move away from traditional currencies. This might prevent central banks from using tools like inflation or quantitative easing during financial crises.
Some, including classical liberal/neo-liberal thinkers such as F.A. Hayek, have argued or still argue against legal tender laws. They believe that market forces should decide which currency reigns supreme. Just as the market determines product supply and demand, it should do so for money. This multitude of market actors provides a robust solution to choosing a preferred currency.
Therefore, some cryptocurrency promoters and entrepreneurs argue today that Bitcoin has a decentralized monetary policy. Satoshi Nakamoto's creation is an innovative step against conventional financial systems. A key feature of Bitcoin is its resistance to inflation, which might weaken other monetary policies.
Market-based economies continuously innovate, with money as the metric for success or failure. Central bankers believe they can manage economies but cannot match an open market's efficiency. Every entity holds unique knowledge, like a restaurant's nightly steak orders. Central banks face a data overload and need help to foresee every detail, leading to potential mistakes.
Thereby, Bitcoin offers a transparent monetary policy, preventing data manipulation post-experimentation. Its fixed supply offers predictability, and while Satoshi hypothesized that such supply might induce speculative bubbles, these bubbles increase attention and adoption. The Bitcoin protocol is stable, and any price volatility reflects the world's uncertainties, not Bitcoin's.
Regarding Bitcoin's supply, it is designed like precious metals – finite and without fractional reserves. Though capped at 21 million coins, each Bitcoin can be subdivided, accommodating the world's economy. If Bitcoin experiences, deflation might not be catastrophic as with traditional currencies.
After all, deflation in product markets, like smartphones getting better and cheaper, is celebrated. If Bitcoin's model isn't appealing, alternatives exist with different inflation rates. In global economic shifts, assets like Bitcoin, gold, and yen often behave differently, indicating their unique value propositions.
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