free page hit counter

In our recent study Perceptions and Understanding of Money – 2020, we surveyed Americans to gauge how well they understand the mechanisms of money, including concepts like monetary policy. We hope that this “Everything You Need to Know” series will help improve understanding of money-related topics and issues that could not be more relevant today.

What is Monetary Policy?

Monetary policy refers to actions that governing bodies may or may not take to manipulate a money supply, such as The balance explains. The importance of the money supply cannot be overemphasized as its relative size plays a role in whether inflation or deflation could affect an economy.

Generally accepted thought holds that those responsible for monetary policy– in the United States, it’s the Federal Reserve Board of Governors and the Federal Open Market Committee – you manipulate the money supply with specific goals in mind. It expands supply to stimulate economic activity, and reduces supply when the economy shows signs of overheating, which can lead to unwanted inflation.

Who creates monetary policy?

The Federal Reserve wields great power when it comes to America’s financial system as it is responsible for establishing monetary policy– with this power, it directly controls the country’s money supply.

The Federal Reserve Chairman, currently Jerome Powell, is the face of the Fed, but two specific leadership groups – the Federal Open Market Committee and the Fed Board of Governors – set power in motion. These groups jointly decide how to manipulate the discount rate (the interest rate for banks borrowing from the Fed), bank reserve requirements and other instruments such as the sale and purchase of bonds.

While you may read that the Federal Reserve sets the goals of Congress, the mandates are vague: grow the economy, prevent mass unemployment, etc. the Fed’s own definition, it is an “ia dependent government agency, but also one that is ultimately accountable to the public and congress ”.

In other words, the Fed and the Fed alone decide how to determine monetary policy in America.

In other countries, monetary policy may be determined by an organization similar to the Federal Reserve, such as a country’s central bank. In Europe, the European Central Bank (ECB) regulates monetary policy for the member states, as the wide acceptance of the euro makes it possible.

And if those subject to the negative effects of Fed or European Central Bank monetary policy are not satisfied with policy decisions, what can they do?

Absolutely nothing, except investing in alternatives to the dollar or euro.

Did someone say Bitcoin?

How the Fed uses monetary policy to influence the economy

If it wants to expand the money supply, a governing body can simply print more money (after, of course, making a compelling argument for the “necessity” of such printing for the token peanut gallery). While overprinting money is generally regarded as a flawed practice that directly causes inflation, it has not stopped the Fed and other monetary policy officials from doing so.

In addition to printing money (usually under the guise of economic stimulus or rescuing an “essential” institution from bankruptcy), those who monitor the money supply can take other measures to influence the money supply. They can buy bonds in the open market in exchange for cash, reduce the amount of money that banks have to keep in reserves to boost loans, and lower interest rates so that banks will borrow money from the Fed and re-lend that money to Average. Joe.

The purpose of each of these approaches is clear: to let money flow into the market to lubricate the wheels of economic activity.

In contrast, the Fed (or some other body in charge of monetary policy) can sell bonds, increase reserve requirements, and raise interest rates to reduce the money supply. It can do this if it senses that excessive inflation has occurred or is imminent.

Some say that this swollen intervention by the Fed only increases the peaks and troughs of booms and busts, and generally results in one consistent result: the depreciation of the dollar.

Cryptocurrencies as a hedge against bad monetary policy

A The Gallup poll shows widespread mistrust of the Federal Reserve by Americans. Historical accounts would suggest that mistrust is fair, as specific recessions and depressions can be linked at some level to the Fed’s monetary policy.

And when the ill effects of financial bankruptcy do arise, the Fed may ask Congress for approval to light the money printers for this bank or that foreign government, further eroding the dollar’s purchasing power in the process. .

Add that the Federal Reserve is involved in lending money to other (economically failing) countries, and that Americans have nothing to say about it, and it is reasonable to see why you might consider an alternative to the dollar as a storage for your hard-earned income.

Unlike the supply of dollars, euros and other currencies that are not tied to a scarce commodity, cryptocurrencies are naturally limited. Unlike fiat paper currencies, they cannot be created at will. There is no unilateral governing body to manipulate the supply of Bitcoin like the Fed does with the dollar, or to lend out large amounts of cryptocurrency in a way that will inevitably devalue each individual coin.

Proponents see cryptos’ independence from direct, legalized manipulation-as as well as its inherent scarcity-aa welcome alternative to whatever a country’s central bank does. It’s no surprise that cryptocurrencies have become a popular hedge in the era of endless money supply growth, escalating debt, and general uncertainty surrounding the global financial house of cards.

Are you interested in cryptocurrencies? Why don’t you start mining them with us? Create your free dashboard and buy some hashpower! Apply now!

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *