No one can deny the power and influence of central banks over the global economy. But was it possible for any single invention to kill such a powerful institution like bitcoin kill central banks?
The answer is No! because not even bitcoin (digital currency) can kill such kind of institution. But, still, yes, there are many possibilities that bitcoin *can kill* *central banks in the future*.
Before going further, you should learn about the central bank.
What is a central bank?
The central bank or CB is also known as a monetary authority. It is responsible for influencing and guiding national monetary policy. It controls liquidity of money supply in the country by using various tools like Cash Reserve Ratio, Statutory Liquidity Ratio, repo rate, open market operations.
Central banks are involved in banking regulation and supervision through the implementation of Basel III (third part of BCBS). In addition, they follow an expansionary monetary policy that aims to maintain inflation at a targeted level.
The largest central banks in the world include the Bank for International Settlements (BIS), European Central Bank (ECB), Federal Reserve System (Fed), People’s Bank of China, and the Swiss National Bank (SNB).
How did Central banks begin to exist?
Central banking in its current form began in about 1609 when King Henry IV of France created [Office of the [General] Treasure]. The goal of this office was to help the royal treasury become financially stable.
The crown of France funded itself by frequently extracting money from [Haras du Coin]. This practice was later replicated throughout Europe and in some places such as New Amsterdam (Now New York) in North America.
Central banks came into practice when there were challenges related to the regulation and supervision of banks and their debts during the 18th century.
Relation of Bitcoin to Central Banks:
Bitcoin was created in 2009. The main aim of founding it was to decentralize the economy and re-invent the global financial system by solving many problems which are still prevalent even after a decade of its creation. These problems include double-spending, identity theft, intervening third parties, high transaction fees, etc.
Bitcoin aims to provide an alternative to government-issued fiat currency. It can be defined as a digital cryptocurrency that is decentralized and works on proof of work protocol which aims to bring in peer-to-peer transactions without any human interference.
Even though many factors separate bitcoin from central banks, the main one would be its aim. Central banks were created to issue currency that could be used to fund wars. Bitcoin was created so that it could help people in conducting peer-to-peer transactions without any third-party interference. Learn more how blockchain programming can land you a job.
Central Banks today:
Currently, there are approximately 181 central banks globally, out of which 25 belong to emerging markets. The rest of them belong to various countries all over the world. [In terms of the number], in Europe, there are around 50 central banks which include the ECB and 19 members of the Eurozone. The US has 12 central banks, including the Federal Reserve System.
It is also not wrong to say that many countries have multiple central banks due to political constraints. Such as [United Kingdom] has a total of five central banks.
Though it is still unclear if bitcoin can kill central banks shortly, there are certainly some certainties to this statement. If you compare both [Bitcoin and Central Banks], you will notice that both have a lot in common. For instance, both are involved in the process of lending money. While central banks provide loans to commercial banks for conducting business activities, bitcoin provides loans to users looking forward to investing in it.
Both have similar mining processes. Central banks have a mining process called Fractional Reserve Banking, while bitcoin has a Proof Of Work mining process, which is used to confirm transactions and keep the network secure.
Both have similar issues of hyperinflation and hyper deflation. Central banks can also cause inflation by increasing the money supply in the economy, while bitcoin has a deflation problem due to its limited availability.
In the end, you can conclude that central banks might not be as easy as you think to be replaced by bitcoin.
