In modern economies, at least up until ~10 years ago, it was assumed that a currency would be technically able to be subjected to monetary policy, that is, where more money is created or removed via typically monetary policy means.
However, certain assets/currencies whose quantity is determined purely through software and cryptography may not be able to be subjected to the same monetary policies.
To what extent can a typical cryptocurrency whose quantity is deterministic be influenced by monetary policy on that currency?
- Technically, an organisation (e.g. a central bank), or even individual, could technically hoard a cryptocurrency in very large quantity, and then affect some sort of monetary policy by:
- spending more of their currency holdings to cause inflation (depreciation of the currency's worth against goods and services), or
- buying more of the currency to make it less abundant and promote deflation as appreciation causes goods and services to be cheaper.
- Note: the orchestrator would have to control a significant sum in order to have a detectable effect.
- Also: although an orchestrator couldn't create more of the currency, they could permanently destroy or decrease the supply (if they were willing to pay to do so) by destroying their cryptographic account keys, which creates an interesting asymmetry in capabilities.
- However, no organisation/government could simply print or create more of the currency, at least not in a way that wasn't predetermined by the software.
One other thing
If the practical word 'cryptocurrency' throws anyone, please substitute it with 'a currency whose quantity is deterministic'.