On 4thJanuary 2019, Fulbright School of Public Policy and Management hosted the seminar on “Money, Monetary Policy and Central Banks”.
Dr. Le Hong Giang, Director Investment Strategies, Tactical Global Management Limited summarized fundamentals of the nature of money, the role of central banks and how central banks regulate monetary policies. On these grounds, Dr. Giang presented his ideas on cryptocurrency.
Fiat money is the most commonly used money in different countries, with 3 basic functions: medium of exchange, store of value and unit of account.
Together with the introduction of fiat money into economies, fractional reserve system (FRS) was also established.
Under FRS, banks can loan out part of its reserves to earn interests. The required reserve which are not loaned out is stipulated by central banks.
Central banks, as lender of last resort, help strengthening depositors’ trust in a bank’s solvency.
Another role of central banks is to regulate monetary policies of a country via tools such as open market operations, foreign exchange interventions and quantitative easing, etc.
Regarding cryptocurrency, bitcoin has successfully shifted customers’ trust in an established institution (a particular bank or central bank) to an algorithm.
However, due to its volatility in value over the last year, bitcoin is unlikely to replace fiat money to be a popular means of exchange in the near future.