Monetary policy of ECB and FED during COVID outbreak

The two central banks faced the pandemic with a completely different approach. The European Central Bank (ECB) has increased funding and set up emergency financial assistance with the ultimate goal of boosting market liquidity, as opposed to the US Federal Reserve, which has taken a different approach by lowering interest rates. cash flow in the market but with rising inflation. As far as the banking sector is concerned, both central banks have taken measures to stimulate programs and financing, as well as to supervise them, with the auditing authorities playing a key role in monitoring liquidity and market equilibrium. In terms of the big picture, the Fed decided to follow a more innovative course with facilities and support for the flow of credit, in contrast to the ECB, which followed a more ordinary course, usually increasing the asset purchase program.

As a measure of comparison, we will take the inflation rate as it is an indicator that reflects the stability of the economy, being a tool of the central banks based on the policy and the support measures they have taken. The smooth course of EU inflation without much fluctuation in contrast to that of the US, indicates a stable economic situation without the outcome of abrupt changes. The Fed's primary goal was to increase inflation through interest rate cuts. It seems that the rapidly desired increase has led to an undesirable result compared to the relatively smooth increase achieved by the European Central Bank through the support packages it received.

USA inflation rate

EU inflation rate

The growing use of cryptocurrencies and the affect in banking system, financial markets, equities and monetary policy?

The first cryptocurrency appeared in 2009 in decentralized markets. They are not issued or endorsed by a central authority such as a government or a monetary financial institution. Acquisition can be done through the mining process in order to confirm the pending transactions. However, cryptocurrencies can be bought and sold through exchanges and stored electronically. The increase in exchange volume shows that it is now accepted, with famous banking systems changing and adapting to the rapid developments considering adopting a blockchain system similar to cryptocurrencies where peer-to-peer technology and decentralized system have the ability to upgrade the role of banks in the modern financial infrastructure. There is a favorable attitude towards the adoption of cryptocurrencies but also the investment by financial institutions in them.

The idea of ​​easy money and the growing volume of transactions with the constant fluctuations of prices in its short life cycle, not knowing the instability and the risk created many upheavals that hindered the wide acceptance as a means of investing and saving in the financial markets. The attempt to stabilize the price of currencies has led to fixed currencies where they can be pegged to a currency such as the dollar or to the price of a commodity such as gold having linked their market value to external factors and through algorithmic buying and selling mechanisms is restored. part of the short-term instability.

The main reason for the creation of cryptocurrencies is due to the use of encrypted transactions that guarantee some anonymity and transparency through the chain of blocks, thus reducing transaction costs as no intermediary is involved. Despite the advantages, the loss and exposure to digital risks is an important factor and in combination with the initial growth where it is located, raises many doubts in the universal use as a public through monetary exchange as it should maintain its purchasing power while keeping inflation as low as possible. , sufficient to encourage spending instead of storage.

The decentralized cryptocurrency system based on technology without an intermediary has the potential to replace a banking system in which a monetary policy is responsible for decisions that affect the economic fortunes of countries. An example is the financial crisis of 2008 where central banks had a negative impact on consumers and the economy as they were responsible for the debilitating recession. However, it suffers from multiple disadvantages including limited supply as it is a product of e-mining and the lack of legal status in most economies. Following technology, central banks are in the process of developing their own digital currency in order to remove intermediaries, thus reducing transaction fees, such as retail banks, and will use encryption to ensure that it is not copied or tampered with.