Is Cryptocurrency the Answer to Fiat inflation?
When a country or a state is said to be undergoing a period of inflation, it means that the general cost of products has increased. In other words, it could be referred to as the decrease in the monetary value. Cryptocurrency is a representation of the actual currency that serves as an exchange medium. Bitcoin is one of the best examples of a cryptocurrency. It was the first to be created and has now gained acceptance as a means of paying for goods and services among different shop owners.
Replacement of paper money with cryptocurrency may have different outcomes. It could result into money instability, which could negatively affect the economy, or it could be used together with the ordinary money, where interested people purchase the currencies, invest them, or direct them to a particular purpose.
Inflation And Economics
Inflation can either have a positive or negative effect on the economy. On the positive side, it could result in fewer people being unemployed due to the stability in prices. On the negative side, it could lead to reduced supply of essential goods and services as the suppliers store them since they expect prices to go higher in the future, not knowing how the inflation will be in the future, discourages people from investing their money.
The president of the Republic of Venezuela announced different changes in the economic sector in an attempt of preventing it from further deterioration.
In his announcement, Petro, which is the cryptocurrency of Bolivia was to be used together with the Bolivar, which is the primary currency. It was also announced that the exchange rate of the Bolivar with the US dollar would increase from 25,000 bolivars to 6 million for each dollar. The wages were also set to grow at a rate of 3000%, which represents a salary of $30 dollars per month for every person. In its attempt to save money, the government also announced a 4% increase in the Value Added Tax, which would result in $10 billion savings per year.
Can The Cryptocurrency Prevent Economic Collapse?
Bloomberg, a news website announced that the new improvements put into effect by the Venezuela president, he stated, “we are not going to provide a quick solution to the already failing economy. Instead, the rate of inflation will increase even more”. The prices of products will increase at a higher rate, and the number of people leaving the country will rise.
After all, the question remains: is cryptocurrency fiat money? The answer is yes or no. Yes, they are not supported by any value, and this makes them less valuable than metal. Since the central government does not control the money supply, its value is not affected. When people started to give up the dollar as an investment, it was a good instinct. People want to invest in places that have essential value. If it is something people are looking for, they cannot find it in cryptocurrency, but if they want to have an alternative currency that has advantages over their national currency, they should do more research on what makes them comfortable.
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