What Are The Differences Between The Monetary Policy Of Fiat Currencies Like The U.S. Dollar & The British Pound And Digital Commodities Like Bitcoin, Litecoin, & Dogecoin?
Dogecoin has an infinite max supply and a current circulating supply of 136,283,184,700. Dogecoin currently has an annual inflation rate of 4.01%, and next year it will experience an inflation rate of 3.85%.
The Federal Reserve sets the monetary policy of the United States Dollar. The Bank of England sets the monetary policy of the Pound Sterling. They can print more of their currency at will and use them to buy assets or prop up financial institutions. In contrast, Bitcoin, Litecoin, and Dogecoin protocols have a hard-coded monetary policy. Changes to the monetary policy require a consensus of its users, which is extremely difficult to achieve and means their policies are practically set in stone. They are decentralized digital commodities that no central authority can manipulate where the supply and inflation rates are limited and predictable.
In terms of inflation, Bitcoin and Litecoin have a deflationary model where the number of new coins minted in each block is cut in half roughly every four years. On the other hand, Dogecoin creates 10,000 new coins every block, with 5.256 billion new coins created yearly in perpetuity. Still, the annual inflation rate of Dogecoin decreases over time but at a slower rate than Bitcoin and Litecoin.
Bitcoin, Litecoin, and Dogecoin all have different supply rates:
- Bitcoin has a max supply of 21 million and a current circulating supply of 19,161,303. The annual inflation rate of Bitcoin is currently 1.8%, and its next halving is predicted to be on May 15, 2024, then it will experience an inflation rate of approximately 1%.
- Litecoin has a max supply of 84 million and a current circulating supply of 71,258,131. The current annual inflation rate of Litecoin is 4.06%, and its next halving is expected to be next year on August 20, 2023, then it will experience an inflation rate of approximately 2%.
- Dogecoin has an infinite max supply and a current circulating supply of 136,283,184,700. Dogecoin currently has an annual inflation rate of 4.01%, and next year it will experience an inflation rate of 3.85%.
The Fed discontinued sharing the M1 Monetary supply on September 17, 2020. The Fed Monetary Policy currently mandates a 2% annual inflation rate, but as of August 2022, the U.S. Dollar experienced a yearly inflation rate of 8.5%. The Bank of England also mandates a 2% annual inflation rate, but they recently discussed increasing it to 2.5%. Still, as of August 2022, the British Pound experienced an annual inflation rate of 9.9%.
The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy "so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." The Fed's mandate for monetary policy is commonly known as the dual mandate. Decisions about monetary policy are made at meetings of the Federal Open Market Committee (FOMC). The FOMC comprises the members of the Board of Governors; the president of the Federal Reserve Bank of New York; and 4 of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. All 12 of the Reserve Bank presidents attend FOMC meetings and participate in FOMC discussions, but only those who are Committee members at any given time may vote on policy decisions.
The federal funds rate is the rate at which banks and other lenders charge each other for short-term loans. Changes in the federal funds rate affect the broader economy. This rate affects overall financial conditions through several channels, including banks' charges on short-term loans to households, businesses, and government entities. Changes in the federal funds rate are quickly reflected in floating-rate loans, including floating-rate mortgages and many personal and commercial credit lines.