Central Banks Will Start Purchasing Cryptocurrencies in 2018

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Most people have come to see that underneath the beautiful tombstones of banking institutions lies the dead and sluggish group of traders who just buy foreign currencies as well as sell them, buy special drawing rights, gold, and any marketable securities. This has been the typical case of most of (if not all) G7’s central banks’ traders. These central banks’ traders almost always are just enforcing orders about investment policy which come from people sitting atop the chain of command of their corresponding countries. At the moment, the G7’s only concern with cryptocurrencies has to do with being able to regulate them… but this could change. There are rumours concerning the possibility of the central banks of the G7 beginning to buy cryptocurrencies in the year 2018.

Foreign Reserves

A central bank primarily is responsible for the whole management of their corresponding nation’s or state’s gold and foreign exchange reserves. These reserves are very necessary in ensuring that the nation can sustain its foreign exchange obligations as well as maintain people’s trust in the nation’s exchange policy rates. This hording and managing of gold by most central banks is because gold serves as a good backing for all assets owned in the nation. Of all commodities that back assets in a nation, gold has historically proven itself to be a stronghold in the times of adversities and in events of external financial “shocks”.

Mostly, people keep gold because of its high liquidity, as well as its ability to diversify benefits (compared to a central bank’s own currency). One other thing worthy of note is that Foreign Exchange is another highly liquidated business transaction area. Now, all the G7 countries are linked through various trade, political and financial agreements. Each nation holds very huge reserves of the others’ currencies; these are what are termed as foreign exchange reserves.

The central banks of the G7 countries also hold marketable securities and special drawing rights (SDR) that are designated in foreign currencies like bonds (governmental), corporate equities and also foreign currency loans. The SDR is an international reserve asset that is meant to supplement its member countries’ reserves. The value of the SDR of the G7 is based on five currencies of the seven currencies of the G7. These include: US dollar, euro, Chinese renminbi (RMB), Japanese yen and British pound sterling. The whole point is that among the countries of the G7, each country holds the other’s currencies either directly or through SDRs.

Times Are A-Changin’

The total value of SDRs created and assigned to members of the G7 stands at about $291 billion. Should the total market cap of bitcoin exceed this value, there is a very high chance that these central banks will begin to purchase cryptocurrencies in an effort to bolster their economies. Now it is very evident just how fiat currencies are underperforming in contrast to cryptocurrencies: in fact they appear to be basically of no value against digital currencies. As this continues, the currencies of the G7 countries and the SDR will have no other option than to start making amends to their foreign reserves in other to make room for the inclusion of cryptocurrencies.

Another factor to consider is the fact that in the year 2018 the entire world will witness cryptocurrencies become the largest international currencies in terms of their market cap. This would undoubtedly make it quite the necessity to own one cryptocurrency or the other as they evolve to become a very concrete investment niche.
As the G7 central banks begin to realise the systemic failure of their fiat currencies against cryptocurrencies, they will eventually resort to exercising prerogative measures in order to detour from the current investment policies that govern the management of reserves. In view of such a turn of events, bitcoin (in particular) together with other cryptocurrencies would be made legal currencies and securities for business transactions by these central banks (because the banks would definitely invest huge sums into cryptocurrencies). But, most of these banks aren’t going to be doing this directly – else what would be the purpose of external fund managers to them. The sad part of it all is that most of this will be done in the shadows, so do not really expect to hear much of these things when they begin to happen.