Ever since the economic crises of 2008, many economists both from the markets as well as the academic
forums have raised the voice of the need for another global currency to replace US Dollar. While the real
economic need to replace US Dollar is still questionable, I believe a new crypto currency may coexist as a
method of payment as proposed by Jamie Dimon, similar to the coexistence of EURO, Pound and Yen
etc.
Today many crypto-currencies are in the market, Bitcoin being the oldest, having originated in 2009.
Litecoin, Dogecoin, Ethereum, Stellar, Binance and Avalanche are others to name a few. The crypto-
currency space continues to evolve and new ones are constantly being developed. They all have
survived the market onslaught and are being traded regularly and smoothly on the exchanges despite
there being no regulatory controls. However, these crypto-currencies do have unpredictable volatility
leading to significant losses and gains. In addition, the block chain technology is still not understood by
most of the common people by and large. In addition to the above factors the effect of macro-economic
factors on crypto-currencies similar to that on other currencies.
In the recent past, Jamie Dimon, CEO of JP Morgan Chase recently announced the possible launch of a
digital deposit token based on block chain technology as a method of payment subject to approval from
regulatory authorities. Possibly, JEPICTO (I am proposing a new name to the crypto- currency deposit
token being developed by JPMC) is on the way to be born and no one would like JEPICTO to suffer from
excessive volatility and poor performance amongst the ever-changing economic scenarios.
Let us explore what can and should be done to control the volatility of crypto-currencies and the effect
of macro-economic factors on crypto-currencies.
Here is a possible solution to control the volatility of crypto-currencies as well as the poor effect of
macro-economic factors on crypto-currencies.
The current status looks like this:
Currently, why the US Dollar exists and continues to be respected as a global reserve currency is because
of the creation of US Dollar Index. The U.S. Dollar Index (USDX) measures the performance of the U.S.
dollar against a basket of six major world currencies. The components of the U.S. Dollar Index and their
respective weights:
- Euro (EUR) – 57.6% weight
- Japanese Yen (JPY) – 13.6% weight
- British Pound Sterling (GBP) – 11.9% weight
- Canadian Dollar (CAD) – 9.1% weight
- Swedish Krona (SEK) – 4.2% weight
- Swiss Franc (CHF) – 3.6% weight
The simplest way to understand it is, when any of the six currencies become stronger, then the US Dollar
becomes weaker equivalent to the weight and effect of strongness of the currency becoming stronger.
And if any of the component currency becomes weaker the US Dollar becomes stronger.
The proposed solution:
This will require calculating a new index called JEPICTO Index. JEPICTO Index should be calculated using
the same formula as the one being used for calculating US Index but with a significant difference. Make
US Dollar as part of the calculation for JEPICTO Index with a 50% weight and make the combined weight
of other six currencies used for calculating US Dollar Index as the other 50% as shown below.
- US Dollar – 50% weight
- Euro (EUR) – 28.8% weight
- Japanese Yen (JPY) – 6.86% weight
- British Pound Sterling (GBP) – 5.95% weight
- Canadian Dollar (CAD) – 4.55% weight
- Swedish Krona (SEK) – 2.1% weight
- Swiss Franc (CHF) – 1.8% weight
This will have the two-pronged effect of not only controlling the volatility of JEPICTO but also safeguard
it from the poor effects of macro-economy on the crypto-currencies. In addition, regulatory controls can
be performed quickly, easily and at a lower cost. How this calculation is materialized in the context of
block-chain technology, I leave it to the block-chain algorithm developers of JPMC.
Good Luck JEPICTO!! Long Live!!