Journal
JOURNAL OF MONETARY ECONOMICS
Volume 106, Issue -, Pages 16-26Publisher
ELSEVIER
DOI: 10.1016/j.jmoneco.2019.07.002
Keywords
Cryptocurrency; Bitcoin; Exchange rates; Currency competition
Categories
Funding
- ECODEC laboratory of excellence [ANR-11LABX-0047]
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We provide a model of an endowment economy with two competing, but intrinsically worthless currencies (Dollar, Bitcoin). Dollars are supplied by a central bank to achieve its inflation target, while the Bitcoin supply grows deterministically. Our fundamental pricing equation implies in its simplest form that Bitcoin prices form a martingale. Mutual impatience implies absence of speculation. Price volatility therefore does not invalidate the medium-of-exchange function. Bitcoin block rewards are not a tax on Bitcoin holders: they are financed with a Dollar tax. We discuss monetary policy implications, Bitcoin production, taxation, welfare and entry, and characterize the range of equilibria. (C) 2019 The Author(s). Published by Elsevier B.V.
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