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Change in Monetary System

Param Parkash (2130191)

University Canada West

MBAF 504 (ONS 22-19) and Business Economics

Professor: Durodola, Oludamola

November 13, 2022

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Change in Monetary System

The monetary system is a set of organizations and structures that facilitates the exchange

of financial transactions (Giannini, 2011). Every country has one organization that controls the

monetary system in that country. For instance, in India, it is RBI (Reserve Bank of India), and in

Canada, it is the Bank of Canada. These organizations are the bodies that maintain rules and

regulations in the country to safeguard the people's interests and make sure the transactions are

reliable, easy and fast. While each of these institutions has its own set of policies, they mostly

use manipulation to further their objectives by changing the money supply and interest rates. For

instance, in the United States, the Federal Reserve is in charge of managing inflation and

preserving employment (Can Bitcoin Kill Central Banks?, 2021). These institutions are the bank

of banks, and they do not deal with regular customers in day-to-day transactions. They regulate

commercial banks, manage foreign exchange reserves, and provide loans and services to the

government. Every country has something as a medium of exchange, and we call it money in

general, like Rupee in India, Dollar in the US, et cetera. Money can be anything if it serves as a

medium of exchange without hesitation, is scarce, has some store value, and has a unit of

account.

The market is evolving in this new era, and everyone is moving toward digitalization.

Money also found its way to digitalization during the 2008 recession. A group or a single person

made the first digital currency (Bitcoin) by the name Satoshi Nakamoto (Can Bitcoin Kill

Central Banks?, 2021). The quality of money is scarce, like gold and silver used as money during

the previous generations because of their scarcity. Later, dollar bills were used as money, but

they were backed up with the same commodity value (gold) in reserves. Now they have shifted

to Fiat money which has no intrinsic value but is legal by the government. Bitcoin is also a
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scarce currency first of its kind, and only 21 million will be generated. It is a digital currency

created through software, and almost 19 million have already been mined (Chau &

Ramachandran, 2022). These new currencies are very volatile in nature and remove the role of

intermediaries (commercial banks & central banks). Recently a crypto businessman Sam

Bankman-Fried filed for bankruptcy due to his entanglement in the cryptocurrency FTT (“The

Collapse of Crypto Firm FTX and Its Superstar Founder Explained for Those Who Know

Nothing About Crypto,” 2022). This is the perfect example to understand how bad it is for

countries to accept these as their currencies.

Countries are considering digital currencies powered by distributed consensus

mechanisms but not over the legal tender system. The bodies will still regulate the transaction

and the supply of these currencies. For instance, India has already launched their digital

currency, “Digital Rupee” which will complement the current rupee and not be a replacement for

the physical one (Ray, 2022). India is already ahead with its Unified Payments Interface for

smooth and safe transactions to achieve its cashless economy goal. The West and the European

Union have accepted bitcoin as a medium of exchange, and some companies have started

accepting bitcoin as a currency.

On the other hand, some use the blockchain mechanism to create their currency available

in digital form. During the earlier stages of cryptocurrency, everyone was against it. However,

now their views are shifting and adopting the same principle or making a better way to

incorporate bitcoin or other cryptocurrencies. Using one currency all over the world will ease the

transactions between borders. There is a long road ahead for crypto to be normalized worldwide.

Countries need better monetary policies and control over these currencies to safeguard the

general public.
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References

Chau, A. ., & Ramachandran, R. . (2022, February 10). Evaluating cryptocurrencies as an asset

class. Wellington. https://www.wellington.com/en/insights/evaluating-cryptocurrencies-

asset-class

Can Bitcoin Kill Central Banks? (2021, November 9). Investopedia.

https://www.investopedia.com/articles/investing/050715/can-bitcoin-kill-central-

banks.asp

Giannini, C. (2011). The Age of Central Banks. Edward Elgar Publishing.

Ray, A. (2022, November 7). How will RBI’s CBDC Digital Rupee work, how is it different

from digital money? The Economic Times.

https://economictimes.indiatimes.com/wealth/save/how-rbis-central-bank-digital-

currency-digital-rupee-will-work-how-e-rupee-is-different-from-digital-

money/articleshow/94705498.cms

The collapse of crypto firm FTX and its superstar founder explained for those who know nothing

about crypto. (2022, November 12). Business Insider.

https://www.businessinsider.com/ftx-sbf-crypto-saga-explained-what-happened-what-it-

means-2022-11?international=true&r=US&IR=T