Central Bank Begins To Take Bitcoin Seriously

Central Bank is starting to take Bitcoin seriously (Photo; Doc. Tech.eu)

JAKARTA - In recent years, attention to Bitcoin and other crypto assets has increased, especially from central banks and financial institutions around the world. Much research has been carried out by leading institutions such as the Federal Reserve Minneapolis, the European Central Bank (ECB), and the International Monetary Fund (IMF) highlighting the potential impact of Bitcoin on monetary policy.

Along with these developments, an important question arises: is Bitcoin, which was originally considered a threat to traditional financial systems, now starting to be accepted as part of discussions on global economic policy?

One of the interesting findings comes from the ECB, which has published two papers with a very contrasting view on Bitcoin. The first paper, published after the collapse of the FTX exchange in 2022 when Bitcoin was trading at a price of 16,000 US Dollars (Rp250 million), describes Bitcoin as a failed monetary experiment. However, in the second paper published in 2024, when the price of Bitcoin soared nearly 70,000 US Dollars (Rp1.1 billion), the author acknowledged a new reality.

The second paper highlights that the increase in Bitcoin prices contributes to significant wealth redistribution. According to this study, as the price of Bitcoin rose, early holders became richer. However, as Bitcoin does not generate new economic value, this increased wealth is drawn from the purchasing power of others in society. In other words, when early Bitcoin holders spend their profits, they use the purchasing power taken from those who don't own Bitcoin or who buy it later. This raises an important question: is Bitcoin really creating value, or is it just redistributing existing ones?

This ECB view reflects a long-standing criticism expressed by Bitcoin supporters of traditional monetary policy. The concept known as Cantillon's effect, proposed by economist Richard Cantillon in the 18th century, explains how central banks, by printing money, disproportionately enrich those close to the supply of money (such as banks and rich individuals), while the wider community loses purchasing power.

Ketika uang baru masuk ke dalam ekonomi, dampaknya tidak dirasakan secara merata; penerima awal uang baru dapat menghabiskan uang tersebut sebelum harga naik, sementara mereka yang paling jauh dari supply uang mengalami inflasi.

In this context, concerns about the inequality of wealth caused by monetary policy are also in the spotlight. The central bank has conducted research on whether a quantitative easing program "in which the central bank buys financial assets to encourage economic growth" justru increases wealth inequality. Purchase of assets such as government bonds tends to increase the price of these assets, so it is more profitable for those who already have assets, similar to the criticism made by the ECB against Bitcoin.

A new paper from the Federal Reserve Minneapolis presents a different point of view. The research argues that when people can buy and store Bitcoin, it could interfere with the government's ability to carry out a consistent budget deficit. In traditional systems, governments can finance expenses greater than tax revenue by selling government bonds. However, the existence of Bitcoin as an alternative causes complications, where governments may be forced to limit their spending solely on what they collect from taxes.

The IMF also underlines the potential risks posed by crypto to the effectiveness of monetary policy, especially in developing countries with unstable currencies. While skeptical of the total ban on Bitcoin, the IMF recommends that countries focus on strengthening their monetary policy framework. IMF recommendations also emphasize the importance of not providing status as a legal tender to crypto assets, so as not to weaken monetary sovereignty.

With more and more research and discussions on the impact of Bitcoin on monetary policy, it is clear that policymakers are starting to take the potential risks and challenges posed by these digital assets seriously. This is not only reflected in academic research, but also in real policy; for example, the IMF's bailout for Argentina in 2022 includes some anti-crypto provisions.

With the increasing adoption of Bitcoin, it will be increasingly difficult for central banks to ignore its potential impact on their ability to regulate monetary policy. Bitcoin's initial goal of providing alternatives to centrally planned monetary policy is increasingly relevant amid current changes in global economic dynamics.