An article by CoinDesk's director of research Noelle Acheson takes note the evolution of central banks over the years, their current role as “responsible parent” and an impending foray into digital currencies.
The first central banks emerged in Europe in the 17th century, in the form of Sweden’s Riksbank, which was intended to be a central lender and clearinghouse. The U.S. Federal Reserve was created over 100 years ago to manage the money supply and to act as a lender of last resort.
Until 1980, central banks were primarily focused on ensuring price and exchange rate stability. Since then, however, they have broadened their mandate to include employment generation and financial market stability. As the article states, "ever since Mario Draghi’s 'whatever it takes' moment, in which he promised the European Central Bank would see the euro through its existential crisis back in 2012, central banks have been completely upfront about their changing role."
Years of increased mandates, however, seems to have resulted in exhaustion. There is a general consensus in the market that the major central banks have run out of ammo. After all, Bank of Japan (BOJ) and Swiss National Bank are running negative interest rate policies. Bond yields across the advanced world are offering negative or near zero yields.
Essentially, the marginal efficiency of monetary policy has turned negative. So, additional easing is unlikely to stimulate demand or boost inflation.
While all seems lost, this is perhaps the best time for central banks to make bold moves - such as venturing into the world of digital currencies. Some have been experimenting, and Facebook’s Libra project, which hopes to create a global digital currency, seems to be accelerating plans almost everywhere.
That said, this would require a reconfiguration of the complex wiring that binds markets, economics and politics. It could take decades, perhaps even a generation.
Bitcoin's recent drop from $10,500 to levels under $8,000 has erased a major portion of year-to-date gains. Currently, the cryptocurrency is up just 9 percent from where it started the year compared to over 45 percent seen four weeks ago.
That number could fall further on broad-based risk aversion in financial markets, courtesy of sustained coronavirus fears and prospects of an all-out oil price war.
Monetary easing by major central banks is not helping either. The U.S. Federal Reserve cut rates by 50 basis points last week and is widely expected to deliver another big rate cut next week. The Bank of England also cut rates by 50 basis points on Wednesday. Even so, the Dow Jones Industrial Average is currently reporting a 1,000 point drop. Oil prices are also down over 3 percent on the day.
The technical charts, too, suggest the path of least resistance is to the downside. Bitcoin remains in bearish territory below the head-and-shoulders neckline resistance, currently at $8,460. With three-day chart indicators signaling a strengthening of bearish momentum, the cryptocurrency risks breaching immediate support at $7,734. That will likely bring additional losses toward the support at $7,130 (200-week average).
However, if prices manage to close out Wednesday above $8,158, a temporary seller exhaustion signaled by Tuesday's inside bar candlestick pattern would be confirmed. That could yield a rise to $8,460. A bullish reversal would be confirmed if and when prices rise above $9,219 (March 7 high), invalidating the lower-highs setup.
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In Trying Times, Will Central Banks Make Bold Moves?