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Adapt to the times - in 2018 central banks will start buying cryptocurrencies

In recent years, the Central Bank of the G7 (the G7, the United States, Britain, France, Germany, Italy, Canada and Japan) in the G7 has remained like a slow-moving trader, buying and selling the same foreign currency day by day, Securities, special drawing rights (SDR) and gold.

Central bank traders in all countries follow an investment policy mandated by the executive board that has a specific asset allocation target. According to the importance, the target of the foreign exchange reserve transaction should generally be liquidity, safety and reward (at the end).

Currently, the G-7 is only concerned with "modest regulation" of cryptocurrencies and does not care about the asset-class potential of cryptocurrencies: the central banks in countries that do allow trades are not bitcoin, Ethereum and zcash on eligible instruments and currency lists.

But in 2018 things will be different. The central banks of the G7 countries will start buying cryptocurrencies to strengthen their foreign exchange reserves.

They are keeping up with the times.


One of the core functions of the central bank is the management of the gold and foreign exchange reserves of its own country or coalition official.

Reserves are necessary to ensure that a nation-state can repay foreign exchange indebtedness and maintain its confidence in monetary and exchange rate policies. In general, the financial stability brought about by gold and foreign exchange reserves has traditionally been the economic welfare of citizens protected by external shocks.

Gold is often held to prevent black swan economic events. Because of its high liquidity, monetary attributes, the risk of diversification can be used as a buffer against disasters.

Foreign exchange is also highly liquid and has the advantage of being able to spread the risk (compared with the central banks' own currencies). Foreign exchange mainly buys foreign exchange through the spot market, swaps investment currency transactions and domestic liquidity management and deposits with foreign-funded banks.


The G-7 countries are interlinked through political, financial and trade agreements.

Most of the countries of the Group of Seven stock each other's currencies - called foreign exchange reserves. Most of these countries also have a large amount of gold reserves. The exception is Canada because they recently cleared all their gold.

The central banks of the Group of Seven countries often also hold special drawing rights (SDRs) and portfolio securities such as government bonds, corporate bonds, corporate stocks and foreign currency loans.

Special mention should be made of SDRs. This is an international reserve asset created by the International Monetary Fund to supplement the official reserves of its member states.

Special Drawing Rights (SDRs), also known as "paper gold", was first issued in 1969 and is distributed by the IMF on the basis of subscriptions made by Member States, which can be used to repay the debts of the International Monetary Fund to make up for the government of Member States A book balance of payments deficit. Its value is currently determined by a basket of reserve currencies consisting of the United States dollar, euro, yuan, yen and pound sterling. In the event of an international balance of payments deficit, Member States can use it to exchange foreign exchange with other IMF-designated Member States in return for a balance of payments deficit or to repay the IMF loans and also act as an international reserve in the same way as gold and freely convertible currencies. Because it is a supplement to the original General Drawing Rights of the International Monetary Fund, it is called a SDR.

The renminbi (October 1, 2016) recently broke the monopoly of the currency exchange rate of the G7 SDR.

It is noteworthy that the SDR is still very favorable to the G7 currency exchange rate.

In short, most of the G-7 countries use the other's currency as a reserve for foreign exchange, whether through SDR or direct possession. Gold is still universally accepted as a common standard.
Why 2018?

As market capitalization exceeds the value of all of the SDRs that have been created and distributed to member countries (about $ 291 billion), the G7 central banks are shifting their perspectives.

Another turning point is that they will realize that their monetary value is depreciating relative to the cryptocurrency. The SDRs and the currency exchange rates of the G-7 countries will be forced to change the weight of their foreign exchange reserves and will eventually include cryptocurrencies.

Christine Lagarde, managing director of the International Monetary Fund, has warned that central banks in all countries, cryptocurrencies are brewing huge devastation.

Foreign exchange reserves are used to support the domestic currency. The legal currency itself is nothing but paper or coin. If the currency is valuable, its value comes from the consensus support of the participants in the monetary plan behind the country. When the Bank of Japan, like one of the G-7, buys US foreign exchange reserves (in U.S. dollars), the Japanese people will also have the value consensus of the U.S. dollar.

By 2018, the central banks of the G7 countries will see bitcoin and other cryptocurrencies becoming the largest international currency in terms of market capitalization. Coupled with the 24-hour non-stop global nature of cryptocurrencies, cryptocurrencies will be part of the central bank's investment.

Cryptocurrency will also meet the new requirements for digital gold.

In addition, foreign exchange reserves are used to promote international trade. This means holding a trading partner's foreign exchange reserves will make the transaction easier. In 2018, cryptocurrencies such as bitcoin will be used for international trade, and its high rate of return will encourage G7 countries to adopt a "hold" strategy.

Foreign exchange reserves are also used as monetary policy instruments. Central banks may seek to sell and buy foreign currency to control the exchange rate. By 2018, central banks in all countries will begin to realize that it is impossible to achieve a monetary policy on the global cryptocurrency market.

Foreign exchange reserves have also been used to hedge their own country's economic performance. Countries that depend on export products for economic reasons may use foreign currency as a buffer if their export volume or the value of their currency declines.

The G7 central banks will buy encrypted currency as a hedge against their economic performance.

What happens?

Compared with the cryptocurrencies, the legal weakness of the legal currency is very obvious. The Central Bank Executive Committee, including the governor, president and chairman, will hold an emergency meeting to exercise its privilege to change the current administration of reserve investment policies.

Bitcoin and other selected crypto currencies will be added to the list of eligible securities and currencies. Central bank money will flood cryptocurrencies.

G7 central banks may use external fund managers to invest in this new era of cryptocurrencies. But do not expect this information to be public.

This will happen in the darkness. Because old habits difficult to change.