Study: Barbados Central Bank Should Consider Bitcoin for Currency Reserves

A Central Bank of Barbados Working Paper suggests that a small portion of Bitcoin Bitcoin While some may still be wondering what is Bitcoin, who created Bitcoin, or how does Bitcoin work, one thing is certain: Bitcoin has changed the world.No one can remain indifferent to this revolutionary, decentralized, digital asset nor to its blockchain technology.In fact, we’ve gone a long way ever since a Florida resident Laszlo Hanyecz made BTC’s first official commercial transaction with a real company by trading 10,000 Bitcoins for 2 pizzas at his local Papa John’s.One could now argue that While some may still be wondering what is Bitcoin, who created Bitcoin, or how does Bitcoin work, one thing is certain: Bitcoin has changed the world.No one can remain indifferent to this revolutionary, decentralized, digital asset nor to its blockchain technology.In fact, we’ve gone a long way ever since a Florida resident Laszlo Hanyecz made BTC’s first official commercial transaction with a real company by trading 10,000 Bitcoins for 2 pizzas at his local Papa John’s.One could now argue that Read this Term may be healthy for its foreign currency reserves.

The report was authored by two economists from the University of the West Indies, Winston Moore and Jeremy Stephen. It expresses some optimism over Bitcoin’s development as a currency, noting its significant appreciation in value since inception and how the number of transactions performed over its network has grown. Thus, “it is possible that digital currency could become a key currency for settling transactions.”

It also points out that because the country maintains a peg against the US dollar, the Central Bank must diversify its foreign reserves sufficiently to protect against “speculative attacks”.

Taking these points into account, the authors assert that a small proportion of bitcoin (0.01%) in its foreign reserve portfolio may be beneficial. The Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term of the country’s reserve basket would likely not be adversely affected, and, assuming bitcoin rises in value, its addition would generate “a significant return for the Bank.”

Bitcoin proportions of 0.1%, 1% and 5% were also examined. While higher allocations of bitcoin in the reserve basket would increase returns, they also would bring volatility to unacceptable levels.

The authors employ two empirical tools to conduct their analysis: a counterfactual exercise using the historical performance of reserve currencies plus bitcoin, and Monte Carlo forecasts of international reserves over the next few years.

The underlying assumption is that bitcoin stands a good chance of increasing in value over the long term. A very similar study last year by the Financial Planning Association was also based on this premise. Such an assertion, however, is far from certain, and many mainstream financial figures believe that bitcoin’s value will decline.

Recently, a survey of leading Bitcoin companies indicated that they believe bitcoin will be the 6th largest reserve currency in the world by 2030.

The latest study comes around the same time as the International Monetary Fund (IMF) recognizing the Chinese yuan as a reserve currency. It joins the US dollar, pound, euro and yen.