A central banker from Prague touched on how central banks perceive, or as he explains it, how they should see the Bitcoin phenomenon.

Mojmir Hampl, Vice-Governor of the Czech Central Bank, states in this article, “Elastic money is key to price stability.” In a very interesting piece the reader can learn that, in terms of size and scope, electronic transactions using bitcoin worldwide amount to only 16% of the electronic transactions conducted in the Czech koruna, a currency used by just 10.5m people.

A rough parallel suggests Bitcoin’s market is a small 1-2 million user market if measured by average Czech economic standards for example. The main point in the article, however, is that price stability is what matters. It is the most sought after quality in a currency, which is a form of money.



The vice-governor naturally makes the case for the current central banking model since money supply needs to be flexible as he argues, “The key principle of bitcoin is that its supply will be fixed, which makes it inherently volatile.”

Purchasing power needs to remain stable. For some though, Bitcoin is an investment and it is accepted to be volatile because it is expected that the purchasing power of bitcoin will rise, if only in certain periods. An investment needs to be lucrative enough to justify the potential volatility.

Bitcoin positions itself on the market with a fixed supply. This helps investors to view bitcoin as scarce and a good inflation hedge candidate. In the correct circumstances the price has that much more room to rise when the market can be certain that there will be no new supply.



Gold is also competing in the market as a currency. It is volatile as well. Interestingly, perhaps it is even more volatile than Bitcoin from a relative perspective. Bitcoin appears to be a leader in a new economic field which promises new potential, at least in the medium-term historically speaking.

Even if for example Bitcoin has a potential for a very quick 90% drop, which would be unlikely for gold, the additional growth prospects for Bitcoin outweigh this additional risk. And there is a further advantage for Bitcoin vs. gold when it comes to velocity of money in the consumer economy environment.

Fortunately, gold is in circulation indirectly through fiat money. Certain top major FIAT currencies have substantial gold holdings, like the Swiss franc for example. Together with other reserve components and debt combined, gold has daily utilisation in our environment and indirect velocity through fiat currency. The question is, can high quality traditional fiat currency be enough in terms of micro-level velocity compared to what Bitcoin does for a significant spectrum of potential users?



The perspective of the text suggests that both gold and Bitcoin are members in the “fixed-money” camp. Fiat is in the elastic money camp, since central banking services provide adequate money supply to sustain an environment of stable prices. As the vice-governor says, money supply must be flexible in order to be able to achieve a price stability effect.

But how much more are stable fiat currencies actually because of this additional element?

In the very short-term it is difficult to say there is much more stability due to this. Prices in the market can change very swiftly. Sometimes the purchasing power of a currency can experience a large move or a swing of more than 10% in just a matter of minutes for example. Such events are driven by market forces, which take into account news releases for instance or can even come about randomly.

Currencies also experience short- to medium-term trends, like the British pound sterling had during the height of the Brexit developments. Market sentiment can overpower any other factor during such times and events.



Flexible money supply as an instrument can be effective once its influences gradually start working through the macroeconomic process. This can take some time before any real impact can be noticed. Central banks need to constantly adjust their policy, monitor their effects and then readjust their monetary policy again. The lag poses a challenge. New circumstances can change the environment before actions produce effects in the economy.

By its very nature any aspect of monetary policy cannot be imposed instantly, as if by a click of the fingers, and it therefore creates a discrepancy between the price stability ideal and a money supply instrument, which the FIAT system has at its heart.



It is important to note that currencies are a form of money. They are basically competing as to which one can do a better job in performing as money. Currencies try to adjust their money supply to achieve price stability within their realm.

Nevertheless, on a macro level, together they create a combined environment. Every one of them wants to achieve price stability, whilst addressing a different economic environment. Currency market price fluctuations are a natural consequence of mismatches due to competing priorities.

In part, this is how efforts toward local price stability can also be translated into the opposite effect on the currency market. For example, if an environment has stable prices, but also substantially decreases the amount of economic activity, then the price of a currency in the market might reflect the latter part more than the former.

In reality it also depends upon how every other economy performs and how they relate to one another, while internally maintaining a stable price environment. Furthermore, it also depends upon how the wider market reads the intention of the central bankers who set the monetary policy guiding any given currency. It may then come as no surprise that central bankers would talk up their own role from the straightforward point of view of self-preservation.



To achieve price stability on a macro level, macro level elasticity is required in such a manner that it leaves space for monetary policies of individual currencies to do their work and at the same time contributes to greater price stability and balance in the overall currency market price action.

Ideally, all this would work without any lag or latency and begs the question “how much stability is optimal?” The thing is that stable zero or near zero movement state or 0% inflation is, at least theoretically, the worst fear, which equals fear of economic depressions. Everything starts to gravitate toward 0 momentums when inflation is pinpointed at 0% and remains there persistently and accurately. Perhaps the Fed’s positive inflation target reflects just that, which is that there should be inflation, which is healthy for the environment.

Essentially the global system needs a combination of stability with some inflation. Inflation needs to be incorporated to achieve escape velocity and protect from 0% inflation. However, price stability at all costs is unrealistic in the medium- to long-term as there are so many more components of any given economy, let alone at the macro level of the world economy, to consider which can and must impact upon any monetary policy that operates in an open financial society.



It is good to have some inflation, there is no doubt about it. Even negative inflation is perhaps better than persistent 0% inflation. Naturally, positive inflation seems to be the better option for almost every scenario. Yet realistically, 2% inflation over a period of 20 years introduces the necessity for the saver to do something with his money. Otherwise his savings’ purchasing power will start to decline significantly in the long run. The environment is looking for a safety mechanism against the effects of inflation, which it, at the same time, needs.



The concept Mr. Hampl’s text sets is price stability. In a static sense, this is the ideal. The inflation part starts creating the dynamics though. Essentially, it is these dynamics that are supposed to be in equilibrium. There must be inflation, yet it must not eat away your purchasing power. In the simplest terms this is the equilibrium inflation. It is about being in the game and not behind the game.



Flexible money of the future must demonstrate a very high level of stability and resilience against various kinds of shocks in the market or in the broader global environment. On top of this a new monetary solution will need to address something that we call equilibrium inflation. That is the level of inflation that enables economic progress, yet at the same time it (the inflation) still does not present a burden on savers.

X8currency project could be an alternative for such a future. It incorporates a systematic, yet highly flexible approach where the system helps with effective money supply adjustments in real time. It does that with the aim of contributing to price stability in the currency market. Because of the natural yield this system earns with such actions it enables a win-win scenario for both sides of the equation. X8currency provides a benefit to both ends. Central bank authorities can achieve their inflation targets and help prevent the economy from stalling, while at the same time savers can protect themselves from getting hurt by inflation in the long run.



For more information about the revolution in the crypto world, check the X8 website and our channels.

Gregor Kozelj

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