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FED has an enormous opportunity to cryptonize dollarized countries.

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Source: coindesk.com

One of the main financial news of last month was that FED had injected 75 billion dollars into the financial system of the United States.

What the FED is doing to maintain (not improve) that country’s economy is historic. That is why I will explain here how this fact demonstrates the great power that FED has in dollarized countries how they can be easily cryptonized once and for all.

But first let’s see a little bit what exactly is FED and what functions has:

The Federal Reserve System (also known as the Federal Reserve or informally FED) is the central bank of the United States.

It is a public / private consortium that controls the organizational structure in which a government agency, known as the Board of Governors. It is responsible for guarding part of the reserves of the “member banks” of the United States: the federal and state partners voluntarily.

The Board of Governors of the Federal Reserve System is an independent government agency, however it is subject to the Freedom of Information Act. Like many of the independent agencies, their decisions do not have to be approved by the President or by someone from the executive or legislative branch: they are unilateral decisions.

The Board of Governors does not receive money from Congress, and its term of office lasts for several legislatures. Once the president designates a board member, he acts with “independence,” although he may be dismissed by the president as set forth in section 242, Title 12, of the United States Code.

The Fed uses three tools to carry out a monetary policy:

  1. Open Market Operations. When the FED buys financial instruments, it puts more money in circulation. With more money available, interest rates tend to decrease, and thus more money is borrowed and spent. When the Fed sells financial instruments, it takes money out of circulation, causing interest rates to increase, making loans more expensive and, therefore, less accessible.

2. Regulate the amount of reservations. A member bank lends most of the money deposited in it. If the FED says they should keep a larger reserve, the amount of money a bank can lend decreases, making loans more inaccessible and causing interest rate hikes.

3. Discount rates. Change the interest rate at which banks can request from the Federal Reserve System. Member banks can request short-term loans from the FED. The interest charged by the Fed to banks for loans is called the Discount Rate, which is higher than the interest rate of commercial banks. This has an effect on the amount of money that banks overdraw. (You can see more here).

As you can see, FED It has sufficient sovereign tools to keep macroeconomic indicators in blue (up to a certain limit of course), causing flagship companies to remain even in crisis’s times.

Dollarization is the term for when the U.S. dollar is used in addition to or instead of the domestic currency of another country. It is an example of currency substitution.

Dollarization usually happens when a country’s own currency loses its usefulness as a medium of exchange, due to hyperinflation or instability.

The main reason for dollarization is to receive the benefits of greater stability in the value of currency over a country’s domestic currency. For example, the citizens of a country within an economy that is undergoing rampant inflation may choose to use the U.S. dollar to conduct day-to-day transactions, since inflation will cause their domestic currency to have reduced buying power.

The dollarizing country effectively outsources their monetary policy to the FED. This can be a negative factor, to the extent that U.S. period monetary policy is set in the interest of the U.S. economy and not the interests of dollarized countries.

To sum up, in dollarized countries, FED’s monetary politics inevitably influence their economies generating a huge impact (sometimes in a good way and other times in a bad way).

Having verified in practice and in theory the great influence that the Fed has in the United States and in dollarized countries, this institution has sufficient power to accelerate adaptation the responsible use of cryptocurrencies that can be use worldwide. So, YES THEY CAN.

It is true, its’s going to take some time to the FED to really convince itself in the implementation of such innovative and dangerous technologies in the short term for the establishment. Such an important institution in the world has the responsibility to help the currency we use to be as stable as possible ALWAYS.

However, I believe that these types of measures would bring the following benefits:

1) Technical decisions: The decisions taken by the FED from that moment will be technically justified and not with hidden motives that benefit certain sectors.

2) Transactions with cryptocurrencies are instantaneous and cheap: Having implemented certain cryptocurrency in all countries where the Fed has direct monetary influence, the transactions will be much cheaper and faster. Of course, this implies a deep reform in the banking sector, which allows banks to become physical platforms that let people make operations with their cryptocurrencies.

3) KYC policy modification that will let everyone have a crypto wallet.

Globally, 1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone that could help them access financial services.

Taking advantage of that high percentage of mobile phone ownership and improving current KYC policies, all those people could have verified virtual wallets.

But of course, to reach to this point, there should be massive training campaigns in this type of technology which can give people a faster and cheaper way to manage their money.

Today there are more and more cryptocurrencies with different characteristics, which strengthen the market as it shows that this industry has no limits on its growth.

Therefore, I believe that it is necessary for the FED to meet with the leaders of the sector to create the best possible cryptocurrency that projects confidence in the market and the people.

This would be a unique opportunity for the US government to refresh and maintain political / economic leadership in the world, being the only alternative strong enough to be a worthy rival against the China’s cryptocurrency that will launch in the short term.

The world must not keep working with the current bank system. It’s just ridiculous to go against people’s needs. Authorities’s resistance will have very strong consequences against themselves.

This alternative is ideological since I have to admit that I don’t know if the FED has the technical capacity and political authorization to create a cryptocurrency to be used at least in the US.

But, I wanted to present this idea as a possible alternative that I’m sure US authorities are already thinking years ago.

By the other hand, I’m conscious that the fact of make dollarized countries use this new cryptocurrency implies a deep reorganization of institutions like the IMF and WB that can take years, but we have to start from somewhere.

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