Central banks are major actors in financial and economic systems. Thus the need for every nation to have one. It is majorly known as a reserve bank or a monetary authority as an institution charged with the responsibility of managing currency, money supply, printing physical money and a host of other responsibilities. This gives them the monopoly of this institution in any nation which in itself, outlines the centralized nature of physical cash. However, such monetary systems might be facing oblivion or reformation with the arrival of digital currency, most especially Bitcoin.
Bitcoin, the newly unraveled innovation is poised to and is already causing ripples of disruption throughout the diverse economic systems of the world. As a cryptocurrency, it refers to a digital currency that is decentralised and beyond the control of a single economic or financial authority. This characteristic is made possible due to the nature of transactions which are verified through network nodes via cryptography, recorded in a public ledger known as blockchain and can be easily exchanged on trading platforms such as bitcoin superstar. The exchange can be done anywhere in the world and at any time.In other words, the blockchain acts as an accounting ledger which records a group of transactions and publishes them every ten minutes without a central authority.
Since the evolution of the Bitcoin, two major perspectives have emerged on its implications on central banks:
Notable columnists and financial institutions have argued that the emergence of the Bitcoin spells doom and brings down the curtain on centralised monetary institutions. The argument is logical to say the least, being that Bitcoin needs no centralised authority.
Others have argued that the new digital currency will only reshape the way central banks operate. As enshrined in this article, the acceptance of one perspective without welcoming the other puts forward a limited scope or view of the issue. I therefore present a confluence of both perspectives which in truth can result from any combination of factors.
Central banks, from the name are centralised government agencies that seek to control the way physical cash is used. Recommendations of these institutions determine to a large extent the standpoint of governments on different issues of fiscal importance. Some central banks with conservative viewpoints might be quick to regard the Bitcoin as an entity with no potential to threaten already established financial institutions.
However, the acceptance of Bitcoin in the last few years indicates that such conservative financial institutions may be heading for the rocks if they continue their disregard for this new currency. While this is so, a different outcome exist for central banks if they accept this digital currency. How the Bitcoin Will Reshape the Roles of Central Banks?
The second outcome for central banks depends on the governmental acceptance of Bitcoin. If governments and their financial institutions accept Bitcoin, the roles will witness a shift.
In conclusion, central banks may not lose relevance, but would stop being conventional and evolve to perform oversight roles on Bitcoin and its functionalities. This is essential as human oversight is needed when dealing with technology.
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