The Banking Executive Magazine - July 2022 Issue

INTRODUCTION The world is looking at crypto cur- rency as a safe haven from inflation because it is well calculated and managed and may not cause infla- tion. Excessive printing of fiat money by government is one of the main causes of inflation, however by adopting central bank digital cur- rency the inflation problem may not arise. In this article we explore vari- ous views about the relationship be- tween crypto currency and inflation with the aim to identify a pattern of relationship over time. Experts' views from world organizations, compa- nies, academia, and financial infor- mation sources are considered including International Monetary Fund (IMF), Binance, Elsevier Eco- nomics Letters, Investopedia, Coin- desk, CNBC, Coin Telegraph, and Financial Post. The article concludes with recommendation to Arab banks and authorities to build expertise in crypto currency and to develop a unified central bank digital currency that can help in addressing the infla- tion challenge caused by excessive printing of fiat money. Islamic banks can play a key role in helping to keep the inflation down and support- ing the Zero Inflation target advo- cated by the International Monetary Fund. RISING WORLD INFLATION Lately, inflation has been a persistent rather than a transitory phenomenon. Largely driven by the global response to the pandemic, financial markets are seeing a steady rise in inflation rates worldwide. Inflation is the process by which the decreasing value of a currency leads to an increase in the price of goods and services over time. In other words, inflation is caused by govern- ments printing more money than is needed. Inflation rose significantly in 2020 as governments worldwide were forced to inject trillions of dollars to help stimulate stagnating economies caused by the coronavirus pan- demic. But now that economies are reopening and consumer spending is picking up, governments face a diffi- cult task ahead. According to the famous economist John Maynard Keynes, inflation is not a horrible thing in some situa- tions, and can actually boost the economy and create new jobs during downtimes. Overall, a low inflation rate stimulates spending, investment and borrowing. On the other hand, when inflation spins out of control, it leads to hyperinflation, causing the the BANKING EXECUTIVE 8 ISSUE 163 JULY 2022 INFLATION AND CRYPTO WHAT RELATIONSHIP? BY DR SOHA MAAD