Bitcoin and it’s implications in International Monetary finance
The financial crisis, the collapse of confidence and the rise of an Asian gladiator all accumulate into the rise of crypto currency
Now it’s very important that people should not rush into this new money called Crypto currency as it is based a speculative form of investment which is hedged to its open end system of demand and supply. Hence, it’s not affected by any country’s Monetary Policy Rate or Fed Rate which on the positive side makes it free of fluctuations caused through policy and controlled economic situations and on the negative side may not be able to withstand long run shocks in global market due to exogenous financial variables and interplay of the forces of its demand and supply
Now, let’s explore a bit of political economics
The rise of Crypto currency and the several dominance battle between the emerging markets and developed world cannot be underemphasized
Let me give us a brief insight into how the international monetary Finance works
Has anyone wondered why almost the whole world is transacting in Dollars and not other currencies?
Yet dollar is not the most valuable currency in the world
Now, during the 20th crisis of confidence and perception in the Global market - the crisis erupted due to the failure in the base value of currencies which was hard commodities..
Before 1930, the world monetary base was *gold* which was considered the most stable commodity in the market (Hence, a rush by world powers to acquire gold reserves and also exploit Africa for gold). But as more countries are acquiring gold as reserves and there was hardly no regulations on exploitations gold, there was a need for shift in the monetary base and also a means of regulating this monetary base.
Then America being one of the affected countries due to the downturn play in investment due to investors perception that the US may divest gold. They came up with the Bretton Woods institution (World Bank, IMF etc)
If you can wait and let me explain the entire monetary system so you won’t just take this currency as a tech enthusiast or as the 21st Century vibe
I’m not saying you shouldn’t invest in crytocurrency but I will just tell you to be careful as speculative currencies don’t last long..
I’m a budding socioeconomic analyst and I will advise my clients on both Short, Medium and Perpetual investments while checking on the risks.
Now the rise in the debt profile of countries and the need to change more dollar bills to gold by foreign creditors is also one of the reasons for the clash.
Therefore, global monetary authorities sought for alternatives which was dollar simply because of its presence across the globe and its large reserves which serves as stabilisation effect in case of any shock
Note that the Bretton Woods institutions are not giving out aids in Africa and emerging economies because they want to help out, it’s mainly because they want to widen the confidence in Dollars and also regulate the global monetary environment. This gives a very much increase to the value of dollars and other currencies that are strong in reserves
After the World War and the several revolutions across the globe (not forgetting the scramble for Africa), the world economic position changed.
China and other Asian Tigers, Re-emergence of Britain and the European Union, The break of USSR and the new Russia started showing off powers with aim of strengthening their economies
Several strategies and policies were adopted across the globe
US started losing grip of the world economy
Then, Africa became the bride... China infrastructural exchange by deploying CCECC to virtually all African Countries to provide cheap engineering services in exchange for Foreign Reserves
The EU Raw Material Initiatives, The USAID and the sudden increase in lending by the Bretton Woods institutions (note that this was one of the reason why most economists protest against the IMF loan Nigeria was offered during recession)
The world was getting diffused into several currencies and there was need to find another currency equilibrium hence the promotion of online clearance and several monetary unions and trade agreement but one issue remained constant which is the USDollars
The world was moving into the 4th Industrial Revolution (Artificial Intelligence and Machine Learning - *topic for another day*) and fast forward to the change in policies and the battle for the centre stage during Obama administration
The Global Recession of 2009 - 2011 which started in the United States was a turning point in the International Monetary finance, hence a need for a total breakage from US Dollars
Xi Jinping of China, Putin of Russia, and other world competitors started looking for alternatives. The Chinese saw the greenlight first and they helped the world out of recession thereby shifting the gaze of world economic power from US to China
US needed to create a new alternative so the 4th Industrial Revolution Artificial Intelligence and Machine Learning influence emerged as they started developing new currencies to be known as crytocurrency guided by the Classical school of monetary thought
Politics and it’s effect:
There was going to be a change in the government of United States and there was a speculation that the dollars will crash (note: election periods always put much pressure on the domestic currencies as so much is spent and investors don’t always want to lose money so they always look for alternatives way of keeping their money safe)
While sourcing for alternatives, cryptocurrencies became so seductive because of its benefits and safety so investors started using cryptocurrencies. You’ll notice that all these cryptocurrencies became very popular during the heat of US election
Then, the world competitors saw that as alternatives. China saw an alternative so it was very surprising to see a very strict controlled economy open its borders to BitCoin which was said to be a liberal currency.
Note that Bitcoin began as an experiment in economics and politics, as a project to create electronic money that anyone could use but no one controlled, especially a sovereign authority. The code behind the new currency gave life to libertarian ideals like: money free from government controls on spending and taxation; transactions that could ignore a global, sometimes corrupt banking system; and freedom from central bank targeting of interest rates and inflation. It was also rebuke to the very notion of conventional money.
*you will also confirm that China has the biggest share of the cryptocurrency world*
Most BitCoin countries are Chinese and the Chinese government somewhat has a control over it
The September 4 crackdown on BitCoin in China via regulatory measures had effect on BitCoin across the globe
*Hence, China achieved a new way to control the global economy which cannot be broken in time*
Now that I have explored a little bit of political economics, I will explain some of my fears about the long run feasibility of BitCoin
If China has the highest number of BitCoin companies and the RMB (Chinese currency) is very popular in BitCoin, don't you think that any shock from the Chinese economy would affect BitCoin?
Also, won't regulatory measures of China (a centrally planned economy) affect the value of BitCoin?
What if most BitCoin companies domiciled in China were forced to close by their government just like the September 4 crackdown. What will happen in the Bitcoin market?
What if in the long run, there’s more demand than supply, won’t there be a crisis
There are so many questions concerning the BitCoin but I will advise that even if you want to engage in BitCoin transactions, kindly do Short Term investment and Cash out
Just like every other monetary base, it’s not a long term pegged currency and is very volatile compared to real term investment