As per a recent revelation by author Adam Livingston on July 9, Bitcoin has effectively backed the central banks of the world into a corner. He stated that these banks are confronted with a never-before-seen challenge as they cannot produce Bitcoin to protect their currencies, thereby introducing a “policy trilemma”.
In response to this situation, policymakers are left with three alternatives. They can either increase interest rates to safeguard the currency through higher yields, exhaust foreign currency reserves to back the domestic currency, or choose to “join the migration” by purchasing Bitcoin themselves, thereby “endorsing the very trend they aim to oppose”, as per Livingston.
“This marks a significant shift in the power dynamics between Bitcoin and governments. The free market is set to emerge victorious,” stated Livingston.
Currently, only a few countries like El Salvador and Bhutan have announced a national strategic Bitcoin reserve, holding 6,089 and 13,029 BTC respectively. Several other countries, including the United States, the United Kingdom, China, and Ukraine, reportedly hold the asset but haven’t officially declared national reserves.
Prominent analysts and crypto entrepreneurs such as Anthony Pompliano, Willy Woo, and Arthur Hayes have all forecasted that the devaluation of fiat through money printing will persist. “The primary reason why Bitcoin was created is debasement, fiat money printing by central banks, leading to hyperinflation,” Woo stated in June.
However, it is unlikely that central banks will hastily adopt Bitcoin. These banks are responsible for monetary policy, price stability, and controlling funds flow within an economy, including its citizens. Bitcoin poses a significant threat to these control mechanisms as people can conduct transactions between each other or via decentralized exchanges without government or bank supervision.
Many countries permit regulated crypto trading which can be taxed, but often limit crypto payments which bypass the banking system. Central banks also fear losing control over the money supply, particularly with stablecoins and crypto-dollarization, hence many are considering CBDCs (Central Bank Digital Currencies) as highly manageable digital alternatives.
