Will Bitcoin Change the World Financial System?

May 23, 2019 by

Bitcoin is rarely out of the news and is closely monitored by those in the financial sector and the government. This is not without reason as Bitcoin’s rise could threaten how world finances are conducted today. The question is how far can Bitcoin go? Could it replace the current fractional reserve currency system and replace the world financial system we have at the moment? Let’s find out.

Bitcoin’s Rise

Despite the crashes, the cryptocurrency has so far been a success. It is new to the game, very new, but it excites and scares financial ‘experts’ who have their own take on what it can and can’t do.

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At the time of writing Bitcoin is in a bullish period and has seen a meteoric rise in the currency’s price over the last month, and also Bitcoin Futures Trading is very popular too with new firms setting up to offer Bitcoin Futures.

Understanding Currency Creation

Broadly, currency is created by central banks at the request of commercial banks to fund high finance deals and the like. Once a bank request is accepted the currency is generated and given to the banks to lend. The idea is that when the loans are repaid with interest the banks will make a profit and presumably the borrowed currency returned. So in effect, the banks are risking not their own money but the central banks.

In addition to government funds, they use customer accounts to finance deals. To encourage banks to hold funds in reserve to cope with cash withdrawals, for example, a fractional reserve system is in place. That is to say that the banks hold a percentage of the total money issued to and deposited in them in reserve. This rate currently hovers at 3% of total funds. On this fractional reserve rate, every bank receives interests paid to it by the central banks.

To control the money supply and to implement policies central banks can withhold and destroy currency which in turn impacts inflation and interest rates.

Bitcoin to the Rescue

Bitcoin offers an alternative way to finance the world. It is not generated or governed by a central bank and as such at least, in theory, is free from government controls and the riskier side of banking. It can easily pass across borders and could become the currency of the internet and possibly the world. Especially if it can become more stable over time.

Perhaps to do this it has to win the trust of the public and get willing politicians to support it. Governments aren’t known for giving up power and control and the banking sector is powerful, arguably more powerful than governments. The City of London where financial powerhouses are based for example effectively exist in a city-state. Laws that apply to the rest of Britain do not apply there and in this lies the rub. How can this power be overcome by Bitcoin?

The answer is no unless the people and brave politicians step up to the mark.

Does it have the potential to replace the current system? Oh yes, for sure. For more information on bitcoin visit this Bitcoin website and get the info you need to start using the currency effectively.

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