The Web3 Era

3The New Centralization

The flow of money and creation of new money for a nation are governed by its Central Bank. In times of crisis, central banks can either save or destroy the economy with good or bad policies.

Central banks are established to conduct the monetary policy and control the money supply of nations. On a macro‐scale, they do this by adjusting interest rates and facilitating operations on the open market, taking charge of the flow of cash in the economy and loans of the nation.

Central banks also work on a micro‐scale by setting the reserve ratio of commercial banks, meaning they set the percentage of deposits a commercial bank is required to keep as cash. Once a commercial bank's reserves dips below this level, they may turn to their central bank to bail them out.

As mentioned in the previous chapter, money is not printed out of thin air – it is supposed to be backed by the economic growth and prospects of a nation, after we left behind the Gold Standard. Thus, increasing a nation's money supply by releasing new cash into the economy must be guided by an independent entity that is free from the influence of the ruling regime.

Mandated with keeping a low, predictable inflation rate and steady GDP growth, central banks can effectively reject and amend the government's fiscal budget if it is bloated or favors corporate profit over the public's interest.

We can think of central banks as the government's bank. As currency is backed by a government's promise of a ...