Central banks are able to influence the foundation of money throughout the refinancing rate, but also by calling commercial banks to place an assured amount of deposits accumulated from the community on the account that banks of the central bank in forms of reserves.
For example, the European Central Bank is autonomous of the countries from which, according to the Treaties of the EU, which propose that it cannot even receive a simple advice. This is what is called the independent central bank’s doctrine. Banknotes issued by the ECB and the national central banks are the only banknotes with a legal fond in the European Union. Central banks worldwide use these operations to carry out mandates reflecting economic objectives for the central financial institution.
For example, the ECB has the main goal to maintain inflation rate close to 2% on annual basis via most favorable distribution of resources and growth, while the aim of the Federal Reserve in the US is to have reasonable inflation targets in order to support growth and employment rate. The autonomy of these financial institutions is also supposed to ensure avoiding the infidelity of the political assessment in order to give attention to producing a conventional and coherent economic framework, according to the formula that favors rules over the discretion right to take some action. In this framework, a variety of constraints imposed by the traditional monetary foundation path may come into sight to be a commotion, which explains why even financial institutions are trying to test the alternative models of money creation, as well as the new means of payment.
A sharp growth of bitcoin price from the beginning of 2017 indicates that the interest in bitcoin constantly increases. It is often emphasized that the uneven changes in the value of bitcoins on a daily, weekly or monthly basis are not conditioned by guaranteeing profits to investors, as this is not the case with global currencies, precious metals, oil or any other stock exchange goods whose change, except the level of supply and demand dictate and economic and political developments in the countries that use them as a means of payment or trade them. Majority of those investors pointed out that bitcoin does not have a value, stating it in order to deter investment in cryptocurrencies.
The incorrectness of this assertion is quite easy to prove, although between value and price does not stand an equal sign, the fact that one purchases bitcoin for of an amount of assets denies this claim itself. What further points to the steady value of cryptocurrencies is that even if the market turmoil and efforts of financial centers to destroy its price was even so low that there would be no denomination banknotes world currency which could be made without a decimal number, and its value would still exist. This is confirmed by two factors, where the first one is usefulness and the second one is scarcity. If we illustrate this using the example of clean air, we would understand that it has value because it is useful, although it is abundant, why it does not pay. However, if due to any pollution it was preserved only in separate rooms, its price would depend on the willingness to pay to join those who want to breathe through their lungs.
As the most significant digital currency, bitcoin, since its very first days, has been compared with national currencies, though it works on completely different principles. Several things that bitcoin and national currencies have in common are not typical cross-section for only these two categories, but for anything that exists on any type of market, where its value has the possibility of being changed.
This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018