Name : Bagas Adhy Prasetya

Nim : 048427814

Please choose one of the topics below. Then, write an essay consisting of 3 paragraph. Elaborate your own opinion
with the references related to the topic that you choose.
Given the rise in popularity of NFTs (Non-Fungible Tokens) and digital art, many creators are now using
auction-based platforms to sell their work. Do you think auctions are an effective method for selling digital art,
considering the unique dynamics of the digital art market and the behavior of collectors in this space? Explain your
reasoning.
With the increasing interest in and adoption of cryptocurrencies, some argue that the role of central banks could
diminish in the future. How might the rise of decentralized digital currencies impact the traditional functions of
central banks, such as controlling inflation, regulating the banking sector, and ensuring financial stability? Explain
your reasoning.

Answer

The Impact of Decentralized Digital Currencies on Central Banks' Functions

The increasing adoption of cryptocurrencies represents a significant shift in the financial landscape, potentially
impacting the traditional roles of central banks significantly. Central banks play a critical role in managing a
country's currency, controlling inflation, and ensuring financial stability. However, the decentralized nature of
cryptocurrencies may challenge these functions.
Firstly, the ability of central banks to control monetary policy, especially inflation, could be undermined by
cryptocurrencies. Traditional monetary policy tools, such as adjusting interest rates or altering money supply, rely
on a centralized control over the currency. Cryptocurrencies operate on a decentralized network, largely
independent of governmental controls, which means that central banks may find it difficult to influence
macroeconomic variables such as inflation rates directly. For instance, if a significant portion of the population
starts using Bitcoin or other cryptocurrencies as their primary medium of exchange, the central bank's ability to
implement effective monetary policy could be weakened as the demand for the national currency diminishes.
Secondly, cryptocurrencies could impact the regulatory functions of central banks. The current banking system is
heavily regulated to ensure solvency, prevent excessive risk-taking, and protect depositors. Cryptocurrencies and
the blockchain technology they rely on, offer a high degree of anonymity and can operate across borders
effortlessly. This poses a challenge for central banks in enforcing regulatory measures. As digital currencies are not
confined by national borders, they could also complicate the central banks' tasks of controlling cross-border money
flow and anti-money laundering (AML) activities.
Lastly, the stability of the financial system, which is a core mandate for central banks, could be at risk due to the
volatile nature of cryptocurrencies. Their prices can fluctuate wildly based on speculative trading and investor
sentiment, rather than underlying economic factors. This volatility could pose risks not only to individual investors
but also to the financial system at large if traditional banks and financial institutions increase their exposure to
cryptocurrencies without adequate risk controls in place.
In conclusion, while cryptocurrencies present new opportunities for diversification and efficiency in financial
transactions, they also pose significant challenges to the traditional roles played by central banks. It is crucial for
regulatory frameworks to evolve alongside these innovations to ensure that the stability and integrity of the
financial system are maintained. This development suggests that central banks need to explore ways to integrate
the technology underlying cryptocurrencies to enhance their monetary and regulatory functions rather than
compete against it.