Inflation in Africa reached the critical values, so bitcoin could become an alternative regional currencies.
Central banks in Africa have consistently adhered to a policy that significantly undermined the purchasing power of citizens. As a result, the bitcoin can offer Africans an alternative to conventional money as a store of value.
Many believe that bitcoin is a means of calculating when the unlawful conduct or not entirely transparent operations. But almost no one is saying that bitcoin can become a salvation for people who suffered as a result of the catastrophic state policy pursued by the governments of many countries of the world. The demand for bitcoin was high in Venezuela and Zimbabwe. But what has been the policy of the most populous African country in relation to the money supply?
Central banks around the world created unsecured money supply one government decree. In most cases, the rich Western democracies have done a good job in conducting monetary policy. Stable prices and economic growth – two key tasks of any Central Bank.
But this does not mean that the Federal reserve system of the USA the ideal. There are a lot of scientific literature, in which he argued that fed policy was the cause of the great depression. She is also responsible for the artificial lowering of interest rates in the 90s that led to the creation of a bubble in the real estate market and the great recession. According to the Austrian theory of economic cycles, sharp fluctuations of the business cycle is caused, as a rule, errors of Central banks in managing the money supply. This leads to a distortion of the real interest rates and, as a result, inefficient investment and wasted resources. But let’s leave the analysis and criticism of fed policy for another article.
In this article we will discuss 4 of the most populous African countries and analyze the monetary policies pursued by their governments. We consider the level of inflation in these countries and evaluate how public financing bodies coped with the task of maintaining stable prices.
The Federal reserve has calculated inflation at 2%. They suggest that a 2 percent inflation guarantees stable prices and economic growth. There are many consequences of high inflation. High inflation eats up savings and makes business planning and investment. The adoption of long-term financial solutions, it becomes risky or impossible. Ongoing inflation leads to a reduction of the boundaries of production possibilities. The burden of the deficit is only exacerbated by this. With the complication of planning and the reduction of investment decreases as the size of fixed capital. Reducing the amount of capital in the hands of workers leads to lower productivity and increased poverty.
The following graphs show the recent rate of inflation in the 4 most populous countries in Africa. The inflation rate calculated at the same 2%. In the first chart presents information for the United States. Other data for Nigeria, Egypt, Ethiopia and the Republic of Congo.
Errors of monetary policy
In Nigeria, Ethiopia, Egypt and Congo the situation in monetary policy were disastrous. The inflation rate in Congo has reached 70 percent. In Egypt it is around 30 percent. In Nigeria, inflation is only just beginning to actively grow, while in Ethiopia, he has reached double digits. The monetary policy of all the four most populous African countries are in a catastrophic state.
The financial authorities is to blame for the decline in living standards in these countries. Milton Friedman, Nobel laureate, proved that long-term inflation is always caused by monetary phenomenon. In other words, the excess number of dollars over a number of goods. The increase in the money supply leads to higher prices, while real output remains at the same level. The increase in the money supply has no effect in the fight against the deficit. Friedman argued that inflation is always and everywhere caused by mistakes of the government.
There is a huge amount of economic research on the causes of errors in the conduct of fiscal policy. Many governments suspended the ruling regimes from the leadership of Central banks. They used the printing press to replenish personal Bank accounts. Modes always use stimulatory monetary policy to promote their stooges in the elections. In addition, governments monetize their debt and spend newly printed money on social programs to attract voters and allies.
The decision on the basis of market mechanisms
The population of these four countries, approximately 450 million people. Every day the inhabitants of these countries are eating up their savings. They can’t plan life, to save or invest in the future. Bitcoin gives hope to these people. They do not need a Bank account national ID or social security number in order to use bitcoin. Bitcoin, as a means of accumulation, will continue to win market share from regional rivals. People were tired to observe of how their purchasing power falls due to inflation. Only these four countries produce more than $ 800 billion of GDP per year. The market capitalization of bitcoin is now around 300 billion.
Bitcoin is subject to strong fluctuations, but with increasing number of participants, its volatility will be reduced. The market is smart and disciplined. Prices eventually reflect the collective knowledge and collective thinking of millions of people. Essentially, it boils down to the same debate, about which so much is written macroeconomic research. Who better to allocate your cash resources? The collective analysis of millions of market participants or a few government officials, lobbyists and bureaucrats? I would give preference to the market, and I think that the Africans will do the same.