⚡️ Monetary Policy and Digital Currencies: A Brief Relationship ⚡️
What is monetary policy?
It is simply the decisions made by the central bank to control the amount of money circulating in the market and its cost (i.e., interest rates). The goal? To keep the economy stable, control inflation (rising prices), and provide job opportunities.
How does it affect your digital currencies?
* When money is abundant and cheap (expansionary policy):
* The central bank lowers interest rates.
* Borrowing becomes cheaper and people have more money.
* Investors look for higher returns and may turn to digital currencies as an investment opportunity.
* Possible outcome: An increase in digital currency prices.
* When money is scarce and expensive (contractionary policy):
* The central bank raises interest rates.
* Borrowing becomes more expensive and people hold onto their money more.
* Investors reduce risk and withdraw their investments from risky assets.
* Possible outcome: A decrease in digital currency prices.
In summary: The digital currency market is not isolated from the traditional economy! Understanding central bank decisions makes you a smarter investor and more aware of potential fluctuations.
