The Central banks of the countries «Big seven» from year to gopakumar the same foreign currency securities, special drawing rights (SDRs), and precious metals, mainly gold.
Central banks follow the investment policy exercised by the Executive committees with specific targets asset allocation. In order of importance the purpose of trading foreign currency as a whole is liquidity, safety and yield (in last place).
Currently the G7 is only concerned with «the proper regulation» of cryptocurrency and does not consider them as a potential asset class. You will not find bitcoin, ether or zcash for in the list of tools and currencies of Central banks. But in 2018, everything can change. The G7 Central banks will start to buy cryptocurrency to support its reserves. At least so says Etsebeth Eugene (Eugene Etsebeth), a former employee of the Central Bank of the Republic of South Africa.
One of the main functions of the Central Bank is the management of state foreign exchange reserves. The reserves are an integral part of ensuring that the national government can service its foreign exchange obligations and to maintain the credibility of its monetary and foreign exchange policy. In General, the financial stability that comes from reserves that have historically defended the economic welfare of the citizens in case of economic shocks.
Gold is typically used as protection against unforeseen economic events as the buffer because of its high liquidity, foreign exchange, attributes and benefits of diversification.
Foreign currency is also very liquid and has advantages of diversification (compared with its own currency, Central Bank). Foreign exchange reserves mainly accumulated by buying foreign currency on the spot market. Exchange transactions on the foreign exchange market in foreign currency used for investment and management of domestic liquidity. The currency comes in term and Deposit accounts in foreign banks.
Countries «big seven» are interlinked through financial and trade agreements. These countries have huge foreign exchange reserves to each other. Most of these countries also have significant reserves of gold.
Special mention deserves the SDR. It is an international reserve asset created by the International monetary Fund (IMF) to Supplement official reserves of member countries. It is important to note that the SDR is strongly tied to the currencies of the G7.
In a nutshell, the G7 countries mostly hold foreign currency each other as foreign exchange reserves regardless of whether they are using SDR or directly. Gold is mainly adopted as a common standard of universal values.
A turning point for Central banks of the G7 was that the market capitalization of bitcoin exceeded the price of all of the SDR, which was created and distributed among the members (approximately $291 billion).
Another turning point is the realization that all the G7 currencies devalue against the cryptocurrency. The currencies of the SDR and the G7 will be forced to change their shares of reserve currencies and, eventually, to include in the basket of cryptocurrencies.
In 2018, the Central banks of the G7 to recognize bitcoin and other cryptocurrencies will be the largest international currency by market capitalization. This event, along with the global nature of cryptocurrency round-the-clock access to trade, make them intuitive, as they de facto become investment under the investment tranche of Central banks.
In addition, the reserves in foreign currencies used to facilitate international trade. This means that holding reserves in the currency of the trading partner facilitates trade. In 2018, the cryptocurrency will be used for international trade on a reasonable basis, because the high return in investment will stimulate the strategy «to hold» to the countries «Big seven».
Reserves in foreign currencies additionally used as a hedge against the decline of its economy. Countries whose economies depend on export products, can use the currency as a buffer if the export or the value of their currency will fall. Thus, the Central banks of the G7 will be buying cryptocurrency as a hedge for the efficiency of their economies.
Since the sensitivity of the system weaknesses of conventional currencies becomes evident and contrasts with the growth of cryptocurrencies, the Executive Committee of the Central banks, including Directors, presidents and chairmen, will deviate from the current investment policy in respect of reserves management.
Bitcoin and other cryptocurrencies will be added to the list of securities and currencies. Central Bank money will be poured into the cryptocurrency. Most Central banks of the G7 are likely to use external funds for investment in cryptocurrency. But do not expect that this information will be freely available. This will happen behind closed doors, as old habits die hard.