Central and commercial banking institutions are the leaders of the global Forex market, which daily amounts to 5 trillion dollars. If we consider this area in more detail, it becomes clear how banks will be able to manipulate the virtual currency market, to dominate the cryptocurrency in a market that is not regulated.

The power of foreign exchange brokers

Central banks in the foreign exchange market are the largest institutions with their own fiat currency, which is in addition to foreign currencies in order to achieve trade and strategic objectives.

By exercising control over the domestic monetary and commercial policies of banks, central banks have broad powers in the foreign exchange markets. The news they announce regarding adjustments to interest rates and inflation reports significantly affects price dynamics, both in the short and medium term, due to the fact that they are set by market participants, and then they continue to influence more dynamic trends as consumers. business response is appropriate.

Is it possible to manipulate virtual currency by central banks?

Bitcoin and other types of virtual currency that have a fixed application are the exact opposite of the existing model of government control.

It should be noted that the initial attitude towards Bitcoin and other decentralized cryptocurrencies on the part of central banks cannot be called good, due to the prospects of the monetary system, which they did not control. But in recent months, other threats have emerged in the form of corporate digital currencies and Libra.

Today, central banks do not yet have the ability to manipulate virtual currencies as property, using interest rate adjustments and subtle tactics for this. But, despite this, they have all the means to create a system that can influence the disclosure of prices in the cryptocurrency market.

Reserve currency Bitcoin

Central banks are encouraging commercial banks to implement Hal Finneys Bitcoin Bank, which is now replicating a fractional reserve banking system. Here, bitcoin serves as a reserve currency, and this system is integrated into Forex. Today, central banks use digital money that can be exchanged for the # 1 cryptocurrency. Many central banks have plans to issue their own digital money. And these digital currencies could become the electronic money that Finney envisioned if bitcoin became a global reserve currency, replacing the US dollar, and a functioning store of value like gold.

But there is another scenario when countries that do not freely place their digital currencies on the foreign exchange market, but peg them to various federal currencies, may receive an incentive to switch to a reserve such as Bitcoin.

To support the pegged exchange rate, the state needs to have a large amount of foreign currency, inflation in the reserve currency may also worsen, and a number of unwanted side effects may arise.

Bitcoin, as a deflationary asset with fixed supplies, cannot be used as a weapon of an external central bank, but it can serve as a benchmark since the increase in its capitalization is sufficient to stabilize the price. But due to the fact that the Forex market is poorly regulated, commercial banks can gain significant leverage to influence the cryptocurrency market without action from central banks.

Foreign exchange regulation

From the moment bitcoin appeared, they have been talking about it as an asset that is easy to manipulate, so they cannot be used. In this case, it is ironic that there is practically no regulation of the fiat currency market, as a more accurate equivalent of a virtual currency.

As you know, the foreign exchange market is a global over-the-counter market, therefore, it does not have an international regulator to conduct trading operations. Spot currency, which is involved in virtually all transactions (85% of the total), is not regulated by all major currency centers. These centers regulate only swaps, futures and other non-spot transactions like derivatives.

Thus, if there are similar conditions for the processing of cryptocurrency by banks, their role in Forex should be clear.

Dominance of commercial banks in the foreign exchange market

The Forex market is dominated by banking giants, including the likes of Goldman Sachs, Deutsche Bank, UBS and Citigroup, and more than half of all trading volume. They are the leading traders.

Banks profit from the spreads between buyers and offers in the Forex market that they offer to institutional traders and corporations that trade foreign exchange. In addition, they make a profit by running their trading programs.

Taking into account the fact that banks carry out large transactions to their corporate clients, which can amount to several billion, the price will move in a specific direction, they can profit from private information, and absolutely legally. Thus, it can be assumed that banks will be able to have the same powers in cryptocurrency. This will be especially possible if central banks allow them to falsify price discovery in bitcoin using fractional reserve systems.

But, it should be noted that there are no clearly defined terms when banks will enter virtual currency. It should also be said that leading banks have been accused and sued for collusion and falsification of prices in the foreign exchange market. Despite the fact that there are a lot of such examples, not a single regulator has yet closed the bank for the possibility of currency manipulation.