2018: The Year Central Banks Begin Buying Cryptocurrency

Authored by Eugene Etsebeth via CoinDesk.com,

Behind closed doors, G7 central banks are sluggish traders that buy and sell the same foreign currencies, marketable securities, special drawing rights (SDR) and gold day in and day out.

Central bank traders follow the investment policy enforced by the executive committees with specific asset allocation targets. In order of importance, the objective for foreign reserves trading generally is liquidity, security and returns (in last place).

Currently, the G7 is only concerned with the "appropriate regulation" of cryptocurrencies and not with the asset class potential of cryptocurrencies. Bitcoin, ether and zcash are nowhere to be found on the list of eligible instruments and currencies that central bankers are allowed to trade.

In 2018, things will be different. G7 central banks will start buying cryptocurrencies to bolster their foreign reserves.

The times they are a-changin'.

Background

One of the core functions of a central bank is to manage their nation-state, or union's, official gold and foreign exchange reserves.

Reserves are integral to ensuring that a nation-state can service its foreign exchange liabilities and maintain confidence in its monetary and exchange rate policies. Overall, the financial stability that comes from hording gold and foreign reserves has historically protected the economic well-being of citizens in the event of external shocks.

Gold is commonly held because it is used as protection against black swan economic events. It can be used as a buffer against calamity because of its high liquidity, currency attributes and its diversification benefits.

Foreign exchange is also highly liquid and has diversification benefits (compared to a central bank's own currency). Foreign exchange is mainly accumulated through buying of foreign exchange in the spot market, conducting money market swaps in foreign exchange for investing and domestic liquidity management in term and call deposit accounts with foreign banks.

Interconnectedness

The G7 countries are interconnected through a lattice of political, financial and trade agreements.

This club of countries hold massive reserves of each other's currencies – called foreign exchange reserves. Most of these countries also hold vast warehouses of gold reserves. Canada is the exception, as they recently liquidated all of their gold.

The G7 central banks normally also hold special drawing rights (SDR) and marketable securities denominated in foreign currencies like government bonds, corporate bonds treasury bills, corporate equities and foreign currency loans.

The SDR needs special mention. It is an international reserve asset, created by the International Monetary Fund (IMF) to supplement its member countries' official reserves.

The SDR’s value is based on five major currencies – the basket includes: US dollar, euro, Chinese renminbi (RMB), Japanese yen and British pound sterling. RMB has only recently (Oct. 1, 2016) broken the monopoly of G7 currencies that make up the SDR.

It is important to note that the SDR is still heavily weighted to the G7 currencies.

In a nutshell, the G7 countries mostly hold each other's currencies as foreign reserves whether it be through the SDR or directly. Gold is mostly accepted as the common standard of universal value.

Why 2018?

A turning point for G7 central banks will be when the bitcoin market capitalization exceeds the value of all SDR's that have been created and allocated to members (approximately $291 billion).

Another tipping point will be the realisation that the values of G7 currencies are devaluing against cryptocurrencies. The SDR and G7 country currencies will be forced to alter their foreign reserve weightings and eventually include a basket of cryptocurrencies.

The prescient Christine Lagarde, managing director of the IMF, has already warned central banks about cryptocurrency causing massive disruptions.

Foreign exchange reserves are used to back a nation's domestic currency. Fiat currencies are pieces of paper or coinage that inherently do not have value. If anything the currency is backed by the shared belief of participants in a country's currency scheme. When a central bank from a G7 country like Japan purchases foreign exchange reserves of the United States (US dollars) the shared belief of the U.S. dollar advertently becomes shared with the Japanese people.

In 2018, G7 central banks will witness bitcoin and other cryptocurrencies becoming the biggest international currency by market capitalization. This event, together with the global nature of cryptocurrencies with 24/7 trading access, will make it intuitive to own cryptocurrencies as they become a de-facto investment as part of a central banks investment tranche.

Cryptocurrencies will also fulfil a new requirement as digital gold.

Furthermore, foreign reserves are used to facilitate international trade. This means holding reserves in a trading partner's currency makes trading simpler. In 2018, cryptocurrencies like bitcoin will be utilized for international trade on a moderate basis because the high returns as an investment will encourage a ‘hold’ strategy for G7 countries.

Foreign reserves are also used as monetary policy tool. Central banks may pursue the option to sell and buy foreign exchange currencies to control exchange rates. In 2018, central banks will start realising that monetary policy for a global market in cryptocurrency is not achievable.

Foreign reserves are additionally used as a hedge against its own economy. Countries whose economies are dependent on export products may use foreign currency as a buffer should the exports or value of their currency drop.

G7 central banks will purchase cryptocurrencies as a hedge to the performance of their economy.

How it will happen

As the realisation of the systemic weakness of fiat currencies becomes apparent contrasted with the groundswell of cryptocurrency, the executive committee of central banks, including governors, presidents and chairpersons – will call emergency meetings to exercise their prerogative to deviate from the current investment policy for reserves management.

Bitcoin and other select cryptocurrencies will be added to the list of eligible securities and currencies. Central bank money will pour into cryptocurrencies.

Most G7 central banks will likely use external fund managers to invest in cryptocurrencies over this new epoch. But don’t expect this information to be freely available.

This will happen in the dark. Old habits die hard.

Comments

Slack Jack Son of Captain Nemo Sun, 12/17/2017 - 22:35 Permalink

The Dead Sea scrolls Hoax.

The Dead Sea scrolls are a mixture of old documents that were hidden in a number of caves to be miraculously found and used to support the establishment of Israel, a country for Jews only.

The main document "finds" were in 1946 and 1947 in caves near Qumran.

Israel was created in 1948.

The Dead Sea scrolls are the only really old (well supposedly old) documents in the Hebrew characters, that have ever been found.

All other documents in Hebrew characters date from later than 800 AD.

Previous to the "finds", many critics had pointed out the late date of all documents in Hebrew characters, and deduced that the Hebrew Old Testament must have been translated from the Greek Old Testament and not the other way round.

Then, low and behold,... a very timely miracle occurs.

The Dead Sea scrolls are "found" and dated to hundreds of years early than the oldest previously known documents in Hebrew characters.

Then, it is widely claimed that documents in Hebrew characters are really old.

The critics are not given access to the scrolls or even photographs of the text, lest they spoil the party.

This goes on till certain critics are dead.

Then, in 1991, only 45 years later, facsimile copies are made available to all.

So that, in brief, is the Dead Sea scrolls Hoax.

More, however, can be deduced....

One can even guess where the Dead Sea documents came from.

It turns out that some of the Dead Sea documents are nearly identical to documents from the Cairo Genizah collection of the Ben Ezra Synagogue in Cairo, Egypt. So, it is likely that many of the Dead Sea scrolls had their origin there.

The Ben Ezra Synagogue was established around 900 AD.

Now the Arabs have ruled Egypt since they defeated the Greek armies around 635 AD.

Now, these Jews (and their synagogue) existed happily, undisturbed, in Cairo, in the midst of the Islamic world.

So, maybe the original Jews were a group of Arabs.

This would explain why Hebrew and Arabic are nearly identical languages.

This would explain why the Hebrew and Islamic religious traditions are so similar.

And, it would also explain why Jews turned up in Spain with the Arabs (Moors).

Another couple of points:

It should also be noted that a few Jewish scholars (in particular, Solomon Zeitlin) have long insisted that the Dead Sea scrolls were a Medieval production. [Zeitlin was a well-known Talmudic scholar and would not claim this unless convinced it was true.]

It is estimated that 20 people occupied the site of Qumran (estimated by the number of inhabitants for whom there was room in the buildings). Now these 20 people were not just ordinary people, they read and wrote Greek, Aramaic, Syriac, Latin, Arabic, and Samaritan documents, like natives, and managed to write learned works on numerous religious topics, while gathering enough water, and raising enough food, for their survival, in a desert.

Some have tried to claim that as many as 150 lived at Qumran, but most have considered that number ridiculously high.

Anyway, I think it is clear that the Dead Sea scrolls are a bunch of old documents that have been thrown together and sold to a gullible world.

http://www.preearth.net/phpBB3/viewtopic.php?f=23&t=1175

In reply to by Son of Captain Nemo

OverTheHedge Nature_Boy_Wooooo Mon, 12/18/2017 - 00:13 Permalink

I have M0 as 1.2 trillion dollars US. Or do we need M2? M2 s around 10.5 trillion US$. Bitcoin market cap is $300 billion, so bitcoin will need to go up by 4x or 30x, depending on which measure you want to use. So, on current form, bitcoin will be there sometime next week, or the end of January if you want to use M2. (I might be exaggerating, a bit).Am I right? As a bear of little brain, I often get confused. The thing I am still struggling with, is "why?" To quote Tom hanks, " I don't get it". Just because, is not an answer that makes me comfortable, and I haven't found any other valid arguments. Lots of things are rare, but not taking over world currencies. Why Bitcoin? As I said, a bear of very little brain.

In reply to by Nature_Boy_Wooooo

Bubble Man OverTheHedge Mon, 12/18/2017 - 01:33 Permalink

"Lots of things are rare, but not taking over world currencies. Why Bitcoin? As I said, a bear of very little brain."Because 90-odd % of bitcoins are owned by less than 10% of the people holding bitcoin.  If you created a new NSA think tank, digital currency (bitcoin) that was planned to be a new world currency; and your powers-to-be co-conspirator's plan was to see if the world was gullible enough to accept a new digital world currency (bitcoin), would you EVER sell said bitcoins  (NSA think tank, world currency)? I think NOT.  Why would you?  Your plan isn't to get rich and cash out for US Dollars. Your budget is funded with an endless supply of fiat US dollars.  You already paid for 90% of bitcoins in existence with fiat dollars that were created out of thin air by the US government for the soul purpose of creating a NWO digital reserve world currency.  If this doesn't work than they will come up with plan B. 

In reply to by OverTheHedge

zebra77a OverTheHedge Mon, 12/18/2017 - 04:31 Permalink

I can help with a sinple analogy. Currency is only worth fhe Gross Domestic Product GDP it can control and or represent, as enforced by your force structure (army / police etc) .  When one person sells a home say,$1 million with bitcoin several things disappear from government control, their taxes, fees, but most importantly their gdp. Noone had to obtain $1 million USD first via fiat issue or saving it up before he could approach and buy it. Gettibg the $1 million USD created currency demand and that gave it value..Instead the home buyer had to buy 25 bitcoin a currency that cannot be easily devalued.. Giving BITCOIN the demand NOT the USD.So as more and more investors started to use bitcoin it gave them an encrypted black box to disappear their transactions and it can be done by anyone.At first CB's ignored it but grabby governments like China saw bitcoin use explode cutting them away from their own control structure..No its not 20% of gdp but it has never stopped growing..  All attempts to stop it saw it simply reappear in another jurisdiction the local government did not control..So China closed all the exchanges only to see them pop back up offshore in Japan in 3 months. Bitcoin had become its own fungible unstoppable gdp ecosystem that no government in the world could control..  The CB's  have probably finally figured this out, and have clearly decided to trial it at a national level (Japan you try - Basel Switzerland..)  By encouraging bitcoin while simultaneously regulating it they can recapture the GDP.  But you have to legalize it first.  You have to make the exchanges report their clients. So Japan CB which owns 70% of the NIKKEI for them to print up $300 billion to capture a 'reserve of bitcoin'  is like you or I buying a coffee. 

In reply to by OverTheHedge

BarkingCat zebra77a Mon, 12/18/2017 - 08:47 Permalink

Governments could squish bitcoin in a heartbeat if they decide to do it.Your example of China is absurd. Bitcoin exchanges poping up in Japan after China closed the Chinese exchanges is a fallacious argument and proves nothing. The goal of China was to stop exchange of Chinese currency for people in China. They achieved it by closing those exchanges. What happens in Japan is not their concern. The Japanese seem to embrace Bitcoin, at least for now. If the United States and the EU decides to squish it they will. Without China, the US and the EU Bitcoin becomes something that is used in the third world. 

In reply to by zebra77a

HRH of Aquitaine 2.0 Stackers Mon, 12/18/2017 - 00:21 Permalink

South Africa is an economic wasteland led by neomarxists and full-blown communists. The rand continues to fall. I woulnd't trust one fucking word out of that assholes mouth. Not one.

Hopefully the SA president will have the same thing happen to him that happened in Zimbwabe and he will be removed. The only person that asshat is helping is himself, his family and sychophants. Which is why communism always fails. Greed while the people suffer. Only this time the SAs can't blame their demise on whitey. Good.

John B. Wells breaks this down in Episode 853 which hasn't been posted on Utube, yet, I just checked. I subscribe worth every penny. www.caravantomidnight.com

In reply to by Stackers

Heavy McNuggets OverTheHedge Mon, 12/18/2017 - 05:02 Permalink

If Central Banks used a crypto you can guarantee they'd turn it into a demurrage currency. Once they do that, then you'll have to spend your bitcoins before they diminish. The Euro is actually structured so that it can one day be a demurrage currency also. The CB's aren't lagging in this fight, they're leading. The question is though, where do you go once they strip these of their store of value function?

In reply to by OverTheHedge

NoDebt Slack Jack Sun, 12/17/2017 - 22:49 Permalink

CBs only buy currencies that they can purchase directly from the issuer.  They DO NOT buy shit on the open market because they buy in quantity that would massively skew the price (unless they intentionally WANT to skew the price).  They buy it from a direct source of that currency based on a REFERENCE to market price.  Putting on a position with any crypto currency by buying on the open market would MASSIVELY skew the price upward (they can only buy, they have nothing to sell to offset it like TSYs or similar).  Unless you have some control of BOTH sides of the trade you can't just put on a position without massively moving the price.  This has been their game for a LONG time.  So.... tell me again how CBs are going to start to buy crypto that they don't control and don't have a direct source to buy from? 

In reply to by Slack Jack

Crazy Or Not NoDebt Sun, 12/17/2017 - 23:28 Permalink

CB's buying Bitcoin is particularly interesting because unlike Etherium they've no (official) skin in the game, til "now." Given Bitcoin's whale problem, CB'ers may be able to buy price influence. However both the increasing length of blockchain resulting in ten minutes sales per blockchain, and allegations circulating that some blockchains may contain homeing pidgeon - "return to sender" coding will dampen enthusiasm - unless they've a plan to counter both...interesting developments.  https://hackernoon.com/https://elementus.io/blog/tether-hack/https://cr…BLOCKCHAIN HACK: https://pastebin.com/jCDFcESz

In reply to by NoDebt

besnook Slack Jack Sun, 12/17/2017 - 23:17 Permalink

listen, what happened to the jews is the same thing that happened to the christians. first of all the bible story is that one brother became arab and the other became whatever prehebrew was called. they are the same as you are to your brother. the jews were displaced and did wander to spain and across the mediteranean sea but many of them converted to christianity which is why there were more christians in the mid east than indigeneous jews before the eurojew showed up. the reason there aren't as many christians left in the mideast is because many of them converted to islam way back when.on a side note, the fact that there were(pre 1967) so many christians in the mid east says there were only the usual problems you have between people who believe different things but not rape and murder.

In reply to by Slack Jack

Ms No tmosley Mon, 12/18/2017 - 00:38 Permalink

I think it's the other way around.  IDK what to do about this shit.  I got out early because I am a chickenshit.  The dollar will collapse and having gold is a must but it is also the case that gold is their enemy and they are obviously trying to take us in this direction.  Now I feel like I should get in at way too high of prices because if they succeed at suppressing PM for too long and crash the dollar you might need some.  Although I don't believe they will be able to suppress gold once the dollar collapses, even if they make it illegal again but you never know.  At this rate they have diluted the value of the gold market enough they will probably start taking gold dealers out. 

In reply to by tmosley

HushHushSweet Ms No Mon, 12/18/2017 - 08:08 Permalink

The ptb want our gold. They want all our gold. The only way they're going to get all our gold is to devalue it and switch our allegiance to some other equally shiny holder of value. To do this, they will chip away at the gold price until it sinks to and sits at a level that takes its shine off as an investment. This won't encourage people to buy it; it will encourage people to use it to buy something else.They want your gold. They want all your gold. And making cryptocurrencies "respectable" by marrying them to the CBs while at the same time exponentially increasing their value is how they're going to get your gold.Note how bitcoin is always depicted as a gold coin.Granted, they might not get all our gold, but they'll get most of it and definitely much more than they would have had they not started this little "to the moon" cryptocurrency experiment 10 years ago. 

In reply to by Ms No

atlas_crumbles AlexCharting Sun, 12/17/2017 - 23:42 Permalink

What if:-Maybe its created by (agency here) to suck QE out of the economy-Maybe the fed secretly tries buying as much as possible off the books causing tremendous demand-Maybe its for realInflation is theft. Tubman is a n*.I don't think people are going to use it for a while until the price/exchange stabilizes, which is never. Who in their right mind would generate a wallet address on a machine running windows? 

In reply to by AlexCharting

Mentaliusanything Son of Captain Nemo Mon, 12/18/2017 - 04:48 Permalink

Well there is a lot of it around and if you or the banks need more we can start with, say, "Shit coin" and its lesser rival "piss coin" and then there is "tele tubby coin" and "super coin" and Marvel comic approved "Batman and Robin coin" and lets not forget the churches favorite : forgive U coin" which is blessed by the Pope. Even the Eskimos want in on the action and are proposing "blubber coin" cause with climate change it will become rarer.Me I am waiting for something backed by .... well you know ... light bulbs

In reply to by Son of Captain Nemo

Son of Captain Nemo J Mahoney Sun, 12/17/2017 - 22:54 Permalink

Confiscation J M more than likely will not happen this time around, because the systemic damage to every facet of the market(s) with QEOO/NIRP/ZIRP has been allowed to continue for far too long.

It's not a coincidence that in the last 11 months of Trump's presidency we've been as close to the start of a World War since the 1940s (let alone the damage of Obama in his second term) which took us to the brink several times. Thanks only to the Russians, Iranians and Chinese patience given the amount of damage we've seen the Western CBs exhibit by lifting their legs and spraying in Eastern Europe and the Middle East these last 2 decades in their looting operation(s).

Au as is Ag is irrelevant at this point because so much of it has been unsecured and loaned out that there is no way of getting it back to any reasonable levels given the amount of debt the U.S. has created.

The damage is done. And there will be no buyers of our debt as USD abroad is flooding back "home" which is why the rhetoric and war drums have only increased with the announcment between Russia and China of the gold backed Yuan!

Unfortunately for the rest of U.S.?... This is END GAME shit!

In reply to by J Mahoney

ebworthen Sun, 12/17/2017 - 22:33 Permalink

Oh Jeebus, another Bitcoin Cartoon pic, and article saying it will defeat the Central Banks and TPTB.If only. Such a nice fantasy, kind of like the Playboy Bunny landing on your bed at 16.

Memedada ebworthen Mon, 12/18/2017 - 03:34 Permalink

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The banksters are rejoicing – they’ve found a new work-free/fiat-driven profit-machine. I've written this many times: as long as “the value of” BTC is fiat-denominated it is controlled by banksters. It is that simple. And as long as the preferred fiat is USD it is controlled by the evil empire. The people rejoicing its fiat-price success fail to understand who benefit – right now and in the long run. Right now the absolute majority of fiat-gains made in the crypto-sphere are made by the same old leeching class. And at the same time they are accumulating enough cryptos to ensure that they control that market too. It is not a market different from any other market in that sense – and that is what they do: control markets. I have not heard one convincing argument for BTC being a game-changer in relation to the unequal distribution of wealth and capital – it might as well just serve as  a mean for the leeches to carry their ill-gotten Ponzi-scheme-profits from this dying paradigm to the next…and the little working man stays little and working for their benefit.    

In reply to by ebworthen