This article is available in Spanish.
Bitcoin, the world’s top cryptocurrency, is designed to act as a monetary or payment option that no one has control over. The use of crypto, which is decentralized and peer-to-peer, eliminates the involvement of third parties such as central banks. This Bitcoin promise has redefined the financial landscape, helping the unbanked and empowering those who want independence. However, the ecosystem also has critics, including central banks.
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The role of central banks is shrinking as the Bitcoin ecosystem grows and use cases expand. This prevailing view is confirmed by a growing body of research from financial institutions and central banks assessing the situation The disruptive nature of Bitcoin. The growing story focuses on Bitcoin’s role in promoting inequality and its potential to disrupt central bank policy.
Bitcoin’s role in wealth distribution
One topic from central bank studies highlights Bitcoin’s role in wealth distribution. To help us understand Bitcoin’s role, let’s look at two articles published by the European Central Bank. The first article, published after the 2022 FTX fiasco, is titled “Bitcoin’s Last Stand” who views the top crypto as a failed monetary project nearing its end.
But in 2024, when Bitcoin reached an all-time high, the same researchers submitted a new study, which portrayed Bitcoin positively. The newspaper argued that crypto can do that influence the distribution of wealthbut only the early owners become richer. Because using Bitcoin or crypto does not produce a product or service, the increased wealth of early adopters comes from the decreased consumption of all other members of society.
Does BTC disrupt monetary policy?
Other financial studies look at Bitcoin’s impact on monetary policy. For example, the Minneapolis Federal Reserve states that when people can hold and use Bitcoinit is difficult for the state to regularly run up budget deficits.
Traditionally, the government can simply offer bonds if there is a shortage of income. But governments are only allowed to spend what they usually collect if there is Bitcoin. The study suggests two options: one, to ban Bitcoin adoption, and two, to tax this asset.
In addition to the Minneapolis paper, a 2023 IMF policy paper highlighted Bitcoin’s effect on monetary policy. The article states that Bitcoin influences a state’s policy, and that emerging markets are the most vulnerable. As a solution, the researchers recommend first strengthening their monetary policy before banning Bitcoin.
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Central banks and financial institutions are now taking Bitcoin seriously
Recent studies and central bank research indicate that Bitcoin is redefining the financial sector. While these articles do not reflect the ideas and thinking of policymakers at these institutions, they give us insight into how the industry views Bitcoin. Some recent policies, including the IMF recommendations for the 2022 Argentina bailout, include some anti-cryptocurrency provisions.
Bitcoin’s continued popularity is now becoming an obstacle for many central banks in their attempts to create monetary policy. One of the main objectives of Bitcoin’s proponents is to provide the public with an alternative financing landscape, free from the control, if not the clutches, of banks.
Featured image of Dall-E, chart from TradingView
