Monetary policy matters: Why it affects your Wallet

Recently, the Central Bank has adjusted interest rates, and some are happy while others are worried. But do you know? These decisions not only affect your mortgage interest but may also change the direction of the crypto market. Today, let's discuss what monetary policy is all about.

What does it simply mean?

Monetary policy is like a “regulator” for the Central Bank—by changing interest rates and the amount of money printed, it controls the temperature of the economy. Want to heat up the economy? Lower interest rates and print more money. Is the economy overheating and needs to cool down? Raise interest rates and withdraw money.

The purposes are nothing more than these few: to control the rise in prices, to ensure employment, and to promote growth. It sounds very macro, but this directly determines how much spare money you have in your pocket to invest.

Two strategies in opposition

Loose policy (flooding)

The Central Bank cuts interest rates and prints more money. The result is: borrowing money has become cheaper, and the public is more willing to spend and invest.

Real Example: During the 2008 financial crisis, the Federal Reserve lowered interest rates to zero and implemented “quantitative easing” (which means printing money like crazy). As a result, market liquidity surged, and money had nowhere to go, driving stocks, real estate, and bitcoins to the sky. If you have spare cash, it's easy to be pushed into the crypto market by FOMO emotions at this time.

Tightening Policy (Liquidity Drain)

Central Bank raises interest rates and reduces money supply. Borrowing becomes expensive, people tighten their belts, and investment enthusiasm declines.

Real Example: In the early 1980s, the Federal Reserve raised interest rates significantly to combat inflation. Interest rose to double digits, who would dare to spend money recklessly? The economy did cool down, but the unemployment rate also increased.

Impact on the crypto market (This is the key point)

Loose Period: More money, low interest → Investors have idle cash → More people enter the market to buy coins → Coin prices rise.

Tightening Period: High Interest, Tight Money → Good Returns from Bank Deposits (Why take the risk of buying coins?) → Market Funds Withdrawn → Coin Prices Under Pressure.

Many people do not understand why the crypto market is tied to the traditional economy, and the key lies here — when the Central Bank starts to raise interest rates, investors gradually shift from high-risk assets (including cryptocurrencies) to stable-yield bonds and deposits.

Difference from Fiscal Policy

Monetary Policy: Central Bank plays (fast, flexible)

Fiscal Policy: Government plays (slow, needs voting)

The former is like direct control in a game, while the latter resembles bureaucratic procedures. A change in interest rates by the Central Bank can have an immediate effect, but the government has to wait a long time for a new tax policy or spending plan to take effect.

Bottom Line

Monetary policy seems far from retail investors, but it profoundly affects asset prices. When interest rates are high, your crypto assets may not appreciate easily; when interest rates are low, risk assets tend to be favored. If you want to make money in the crypto market, paying attention to the Central Bank's direction and interest rate changes is essential.

Disclaimer: This content is for educational and informational purposes only. It does not constitute financial, legal, or investment advice. Investment risks are borne by the investor.