One of the biggest threats in today’s economy is a deflation. When prices are falling steadily, consumers and businesses are less inclined to spend and invest. Also, the weight of debts automatically increases, as they do not degenerate with prices. In particular, central banks target an inflation rate of more than 0 percent to 2 percent to reduce the risk of deflation. If in inflation rate is excessively low, interest rates are lowered and the money supply is increased.

By observing the data related to the global economic growth and policies of leading central banks in the world there could be noted that since 2014 there were billions of share repurchases, while at the same time huge amount of money was spent in order to lift up prices of corporate shares from the companies themselves. The fact is that the reason for the governments to borrow was covering their operating costs, while companies have borrowed to increase, to develop new segments, as well s to buy their shares making up the prices. However, none of them was able to follow the rule of selling or buying at lowest or highest since during the crises corporations have taken advantage of such a chance to buy back their own shares at a reduced prices. Those prices are high again, they give the impression almost each and everyone wants to buy, even though it must surely end. It is easier than ever to predict what will happen when stock prices will collapse.

Since the global financial crisis emerged of 2008 a real war against savers has begun to lower interest rates and consequently the recompense of savings, followed by the lower refinancing rate almost on zero level and Quantitative Easing programs. The increase in liquidity caused by quantitative easing programs does not wash out the real economy, but is largely directed towards the financial sectors. The accumulation of public debts has reached such a level that monetary policies will have to transform, and inflation will make its return with its instruct of dislocations, unemployment and various types of injustices.

Measures that the leading central banks have applied in order to trace the path to economic recovery, combined with tighter regulations and heavier taxation has led to an end of private investment and a deflationary spiral. In this situation it became very obvious that currencies, especially those that are under control of the leading central banks, are not only an expression of the value of commodities like the indicator, but they serve as a connection between the present and the future. Price stability, which describes the situation, where price fluctuations are very low or do not exist, does not concern the decisions of economic subjects as they are standardized across all economic areas. On the other hand, the behavior of economic subjects, responsive to inflation or deflation, influences the development of inflation. Individuals try to preserve their real cash balances because they are not fooled by the monetary illusion created by inflation and they require the maintenance of their purchasing power in real terms.

It is difficult to envisage that virtual currency, without the assistance of a government, without regulatory mechanisms and likely to cause unstable inflation, may one day be used on a large scale. A strapping regulatory framework would also be required to guarantee that different users are not harmed. If account, exchange and transaction costs are low with cryptocurrencies, it is notably because there is no protective covering and recourse in case of prejudice to the users. In the traditional monetary system, several components work to protect the citizens, but these structures have a cost, where deposit protection is a good example. Regulatory requirements are increasing according to the use of the currency in order to cover the new risks that appear. The bitcoin network allows the currency to change owner, but does not allow lending funds.

It seems that the method of spread of monetary policy is not working, or is at least detained. The spread means that the effects of changes in the key rate have a collision on the economy as a whole, down to the rate of inflation, which can be explained by the caution of banks to lend to the private sector as a result of recent stress tests and the rules set during 2010. Therefore, explaining the meaning and the purpose of the digital currency has lead to defining its level of soveregnty in comparison with the existing monetary system or the position of leading central banks, where many people think that a country is sovereign and that if it has contracted a debt in a currency, it is free to reimburse it in another country it chooses.

All of these shows that the users are hence reliant on its volatility, which is the spot on which bitcoin enthusiasts must not fail to turn down any liability, clearing up that the rate of conversion of the regular money into bitcoin may be dissimilar from what is relevant when we convert bitcoin into regular money. This does not mean that one might require bitcoin address in order to send money, since an e-mail or a phone number is as much as necessary, though the beneficiary does not have a digital wallet in some of major supported currencies they will receive bitcoins which could be exchange on other platforms.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018