Central banks are flocking to government-backed cryptocurrency, taking full advantage of the media attention brought to Bitcoin and other digital currency. However, while government-backed cryptocurrency avoids some pitfalls presented by private cryptocurrencies, other problems are less easily sidestepped. And government-backed cryptocurrencies, if widely adopted, could present issues to the stability of the international monetary system. These problems must be addressed, and not only as they arise. Unfortunately, national and international governments have shown no real ability to deal with troubles arising from private cryptocurrency. The government-backing of such digital currency changes the calculus, permitting a new entity to deal with these problems. The International Monetary Fund (IMF) is the best organization to deal with the issues. This Note submits that the IMF should act quickly to take pre-emptive measures and develop a system of best practices for dealing with government-backed cryptocurrency in pursuance of ensuring a stable international monetary system.
Abstract Macroeconomic strategies and policies have differed significantly among Asian countries, and yet some common issues recur despite their immense diversity in inherited historical initial conditions, differences in political systems, geopolitical situations, location and size, and natural resource endowments. The chapter examines from a comparative perspective issues like unemployment, state versus market, domestic versus foreign market, degree of openness in trade, investment and finance, industrial and technology policy, decentralization, and economic and social inequality. While some countries have been more successful than others in dealing with these issues, our comparative perspective also shows development itself as a moving target, thus requiring flexible institutional and policy responses at each separate stage of development, which makes uniform guidelines misleadingly over-simplistic.
Changes in the structure of interest rates affect the decisions of profit-oriented firms directly as well as the profitability of banking operations. Institutional reforms are crucial in allowing the banking system to assume a meaningful independent role in the economic system. A bank branch also is allowed to reallocate loans among the following categories, as long as the overall target is met: loans to state industrial enterprises, to collective industrial enterprises, and to commercial enterprises, both state-owned and collective. Direct or indirect quantitative restrictions on bank credit of course will prevent the multiplier from operating, but by their very nature they defeat the purpose of the decentralization measures. Low interest rates, combined with the fact that for industrial enterprises most working capital is financed by state budget appropriations rather than bank loans, contribute to a somewhat different problem noted by Chinese scholars.
Compared to initial public offerings (IPOs) that are sales of company ownerships, and loans that are sales of debt claims, initial coin offerings (ICOs) are sales of promises of cryptocurrency appreciation. However, regulatory uncertainties continue to prohibit successful widespread adoption. This paper examines ICOs with varying levels of success, including Mastercoin (now Omni) and Kin, as well as fraudulent ICOs, like REcoin and OneCoin. The discussion of the benefits and flaws within the ICO market examines regulatory challenges concerning risks transferred to investors through information asymmetry, while questioning the ability of regulations to enhance investor protection mechanisms without undermining the fundamental value of cryptocurrencies and ICOs as a viable funding structure.
We take this question to be isomorphic to, "What Keeps Fixed Exchange Rates Fixed?" and address it with analysis familiar in exchange-rate economics. Stablecoins solve the volatility problem by pegging to a national currency, typically the US dollar, and are used as vehicles for exchanging national currencies into non-stable cryptocurrencies, with some stablecoins having a ratio of trading volume to outstanding supply exceeding one daily. Using a rich dataset of signed trades and order books on multiple exchanges, we examine how peg-sustaining arbitrage stabilizes the price of the largest stablecoin, Tether. We find that stablecoin issuance, the closest analogue to central-bank intervention, plays only a limited role in stabilization, pointing instead to stabilizing forces on the demand side. Following Tether's introduction to the Ethereum blockchain in 2019, we find increased investor access to arbitrage trades, and a decline in arbitrage spreads from 70 to 30 basis points. We also pin down which fundamentals drive the two-sided distribution of peg-price deviations: Premiums are due to stablecoins' role as a safe haven, exhibiting, for example, premiums greater than 100 basis points during the COVID-19 crisis of March 2020; discounts derive from liquidity effects and collateral concerns.
The Banking Union is a framework composed of “Single Supervisory Mechanism （SSM）”, “Single Resolution Mechanism （SRM）” and “Deposit Guarantee Scheme （DGS）” and aims at strengthening regulation, observation and governance in the European financial sector. In the case that a bank goes into bankruptcy, it will be saved, without using public finance, between stockholders and creditors under the framework of banking union. Moreover, European Union （EU） integrates the responsibility of observation into the European Central Bank （ECB） and expects that ECB will be able to timely intervene banking system in member countries so that it can stop spreading financial crisis. On the other hand, European financial system is diversified and regional oriented in nature, reflecting its history, culture and policies. For example, in Germany, Landesbank/Sparkasse system, which is like a public bank owned by local government, and cooperative banks, which have close relationship with local businesses, has a larger share and influence. In France, large financial institutions such as Credit Agricole, BPCE group and Credit Mutuele, which are owned partly by public entity, make it possible to be both commercialization and localization at the same time by owning numerous small local banks under their umbrellas. In the Netherlands and Finland, which are economically successful in Euro zone, cooperative banks such as RaboBank and OP Group have also larger share and could keep sound banking even during European debt crisis. However, In Spain and Italy, which owns about 1/3 of bad loans in whole Euro zone, cooperative and saving banks also have larger share in their financial systems but it is criticized that its governance is one of major reasons causing financial crisis. Purpose of this paper is to overview how de-centralized financial system like saving banks and cooperative banks, which have larger influence in European countries, are overcoming the financial crisis in major European countries and to analyze and discuss effectiveness of both banking union and stability of regional financial system, emphasizing its importance as a stabilizer of money circulation in regional economy. This paper also tries to show the soundness of regional financial system during European debt crisis with recent business performance of cooperative banks which have decentralized financial structure and to complement precedent papers by indicating that characteristic of financial structure have some relationships with degree of financial crisis through comparing the characteristics of four major Euro countries such as Germany, France, Spain and Italy. （395 words）
The growing literature on Bitcoin can be divided in two groups. One performs an economic analysis of Bitcoin focusing on its monetary characteristics. The other one looks takes a financial look at the price of Bitcoin. Interestingly, both of these groups have not given much more than passing comments to the problem whether or not Bitcoin has the right monetary rule. This paper argues that Bitcoin in particular, and cryptocurrencies in general, do not have a good monetary rule, and that this shortcoming seriously limits its prospect of becoming a well-established currency.
Advocates of cryptocurrencies such as Bitcoin believe that having currency competition will help achieve the economic objective of price stability. This Issue Brief summarizes research that explores whether competition among privately issued fiat currencies can actually produce price stability. The research finds that in most cases, a system of private monies does not deliver price stability. And even when it does, it always is subject to self-fulfilling inflationary episodes, and it supplies a suboptimal amount of money. Although there is no economic reason to curb the use of cryptocurrencies at the moment, it is important to review key regulatory issues that policymakers need to consider now, before the use of cryptocurrencies becomes even more widespread.
Shuba Olena А., Honcharova Yuliia Yu., Bulygina Anastasia V.
The article is aimed at researching bitcoin, the digital currency. It has been found that Bitcoin is a cryptocurrency, that is, the virtual money, which has no material equivalent. The history of creation and development of cryptocurrency was reviewed. There is a reduction in volatility, which guarantees the security of currency, as well as the increase in currency volume and the inability to estimate the profitability of bitcoins. The dynamics of the value of digital currency in US dollars over recent years has been analyzed. Improvement of attitude of many countries to the considered cryptocurrency, in particular the USA, Germany, Spain, Canada, Australia, Israel and Scandinavian countries has been identified. The reasons of Ukraine’s interest in Bitcoin have been considered. Possibilities of creation of cryptocurrency on the territory of Ukraine have been analyzed, i.e. cost of electricity for mining, the legal status of mining firms, and the attitude of the National Bank of Ukraine to the digital currency. It has been concluded that the recognition of Bitcoin by the world countries in the future will allow it to be granted the status of world-wide currency.
The global financial safety net (GFSN) has become larger and more decentralized, creating a need for greater coordination. The expanded GFSN has created multiple sources of official financing for countries in need of support to address balance of payments shocks. Enhanced coordination among these layers would facilitate a more efficient use of global resources and provide better incentives for implementing sound policies. A new non-financing Policy Coordination Instrument (PCI) would address gaps in the GFSN and the Fund’s toolkit. The new Policy Coordination Instrument is designed for countries that are seeking to unlock financing from multiple sources and/or to demonstrate a commitment to a reform agenda. It would enable a closer policy dialogue between the Fund and countries, more regular monitoring of economic developments and policies, as well as Board endorsement of those policies. It would be available for all member countries. The key design features draw on Fund financing arrangements and the Policy Support Instrument (PSI), with some important differences. These include no qualification criteria, a review-based approach for monitoring of conditionality, and a more flexible review schedule. The PCI is part of a broader set of Fund policy proposals to improve coordination with RFAs, enhance liquidity provision for members, and ensure the cohesion of the Fund’s toolkit. The IMFC and the G20 called for further work to strengthen the GFSN and to improve cooperation between the Fund and regional financing arrangements (RFAs). In response, the Fund has produced a diagnostic of the GFSN and the Fund’s toolkit and identified important gaps. Introduction of the PCI, when considered together with the other proposals, will help to move towards a GFSN with improved coverage, more reliable support, and better coordination between the various layers.
During this decade we have witnessed the introduction or scaling of several forms of alternative currencies. The Alternative Currency Database includes more than 300 local alternative paper currencies. Cryptocurrencies such as Bitcoin represent non-government backed digital currencies that have grown substantially through the underlying blockchain technology. Timebanking is another form of alternative currency where more than four million hours of time have been exchanged for future time from network members around the globe. I believe we are on the cusp of a transformation in how value is captured and exchanged in society. Much of this change is driven by a grassroots, and technologically-empowered movement, to confront the ills perceived to be powered and exacerbated by market-based capitalism, such as climate change and income inequality. I will argue that alternative currencies discourage passive investment, and therefore serve as a powerful alternative to market-based capitalism. Throughout this essay, I refer to ‘traditional currencies’ as strong currencies and alternative currencies as ‘weak currencies’. Strong currencies allow for, and frequently incorporate incentives for investors, speculators, financiers and others to hoard or leverage money for economic gain, whereas weak currencies are those with no inherent incentive in accumulating the currency, and in fact, may have built-in disincentives to do so. Before describing each of the three forms of alternative currencies of interest in this essay (local paper currency, timebanking and cryptocurrency) it is worth briefly reviewing current thinking about alternative currencies. While management scholars have largely been blinded by the emergence of alternative currencies, scholars in many other fields have explored alternative currencies from multiple perspectives. Currencies are a mechanism for enabling an exchange between parties. Whereas traditional currencies are backed by nation states, alternative currencies are not. Political scientists have been exploring local currencies as a challenge to the legitimacy of nation states for decades (e.g., Williams, 1996). The resistance to the power of the state, expressed as growth in alternative, non-government backed currencies, contributes to the positioning of alternative currencies as a response to perceived failures of capitalism and the nation states that continue to support market-based capitalism. Similarly, economists have long viewed the birth of alternative currencies as a grassroots movement against capitalism, free-trade and globalization. In this sense, one could view alternative currencies as a manifestation of a social movement, a resistance against perceived ills brought by free trade, nation building and more recently, the increasing automation of work (often referred to as industry 4.0 or the fourth industrial revolution) which is leading to a sizable increase in freelancing and the ‘on-demand economy’. While much of the growth in freelancing is driven by capitalist tendencies of corporations to increase efficiencies and drive down costs there is also a growing interest in freelance and independent forms of work particularly amongst the millennial generation (Cohen, 2016). The growth in freelancing opens up avenues for the application of alternative currencies, particularly timebanking, whereby peers connected by platforms can exchange expertise without exchanging cash. So why do I view the weak nature of most alternative currencies to be a positive transformational condition for alternative currencies? As corporations continue to eliminate jobs due to efficiency gains and automation, many corporations and their shareholders are getting richer while much of the population is getting poorer. Alternative currencies being weak currencies mitigate wealth accumulation in the hands of a few and empower participants to benefit more directly from their contributions to the exchange system. The growing evidence suggests that market-based capitalism is adequate to good at supporting returns to passive investors. Venture capitalist and investors in publicly traded corporations have witnessed gains in recent decades, meanwhile employees of those companies, and society at large have failed to experience the same benefits. While the United Stated is in an economic recovery from the great recession, underemployment and income inequality continue to grow. The short-term profit maximization encouraged by investors in the stock market, and the quick path to exits for start-ups targeted by venture capitalists have yielded wealth accumulation in the hands of a few, yet resulted in little benefit to society as a whole. Proponents of a post-capitalist movement leverage the evidence of growing income inequalities and the shift of capital and wealth to the financial markets to suggest that we are witnessing the decline of capitalism due to what historian Ferdinand Braudel (1992) referred to as the financial autumn theory. When citizens, makers and producers of value in society share less in the economic benefits of their activity, while the financial players reap growing percentages of such economic activity, Braudel suggests this to be a signal that the prevailing economic model has reached its maturity. Alternative currencies yield business models that penalize hoarding and returns on investment, and instead focus on velocity of community-based transactions amongst peers and local businesses. Passive investors in the alternative currencies arena, therefore have little to gain. Where alternative currencies are weak and the orientation is on high velocity transactions, the active participants of the transactions will benefit more than passive investors. This is what positions alternative currencies as a direct reaction of the masses to the ‘financialization’ of the markets. Financialization occurs when lenders, financiers and investment bankers increasingly profit from citizens and consumers, through student loans, car loans, mortgages, credit cards and several other financial instruments. Forbes (Collins, 2015) defined financialization as ‘the growing scale and profitability of the finance sector at the expense of the rest of the economy and the shrinking regulation of its rules and returns’, highlighting that between 1970 and 2010, the finance industry doubled its share of GDP from 10 per cent to 20 per cent. Alternative currencies being weak currencies pose the potential to serve as tools for facilitating more direct exchange of value between peers and local businesses, at the same time, give little opportunity for the financialization we have witnessed in recent decades in market-based economies. Furthermore, the role of weak alternative currencies in transforming the relationship between founders, users, employees and investors amongst start-ups is a fascinating one. I would even argue that if we see a meaningful shift towards post-capitalist models, we will see the death of venture capital as we currently view it. As it is, we have collectively overhyped the importance of venture capital given its very small contribution to the global economy and the miniscule percentage of start-ups that receive venture capital. For example, a recent study by the Kaufman Foundation found that less than five percent of start-up funding in the United States comes from venture capital sources and only 6.5 per cent of high growth start-ups had received venture capital. I will briefly explore this concept in the context of each of the three alternative currencies that are the subject of this essay. In some form or another local currencies have been around for centuries, and of course pre-date modern, treasury-backed currencies at the national level. But since the widespread adoption of national currencies, local alternative currencies have had a place in societies around the globe. They have been commonly implemented in a grassroots fashion as a response to economic shocks, such as in Argentina after the economic crisis around the start of the twenty-first century. More recently, Spain for example, witnessed the introduction of a dozen local currencies following the 2008 crisis and, similarly, as the Wall Street Journal reported in 2015, Greece has experienced a big boost in the alternative currency movement. Perhaps surprisingly, local paper currencies are also flourishing in more than 50 communities throughout the United States. BerkShares, founded in 2006 in Berkshire, Massachusetts, are actually acquired by exchanging U.S. dollars for this local currency, which then must remain in the community. More than 400 local businesses in the community accept BerkShares for payment. The goal of BerkShares is to ‘maximize the circulation of goods, services, and capital within the region… and to distinguish the local businesses that accept the currency from those that do not’.1 While each local currency operates differently, these initiatives all seek to support local communities over foreign companies and investors. Local physical currencies are the epitome of weak currencies as they are virtually impossible to accumulate at any large scale that would give any single holder monopolistic rights. In fact it would be useless to achieve such a position because local currencies are only valuable with a local, active exchange system. Therefore, I have uncovered no examples of private passive investors in local paper currencies, suggesting that this form of currency does not enable the same dispersion between corporate and investor gains without social gains. To further reduce such a risk, many local currency systems implement a negative interest rate mechanism that serves to significantly disincent their hoarding. The concept behind timebanking is that instead of delivering a service in return for monetary reward, a member of a timebanking community can offer service to another member and then receive time credit to be utilized within the same timebanking community, but by any other member. The recipient of the original service is not obligated to deliver a service in return to the same member, but, instead, becomes indebted to the community and will owe an equivalent amount of time to another member. It is virtually impossible to accumulate time credit to a point where any individual in the community can exert monopoly power over the community. Thus timebanking is clearly a weak currency. Historically timebanking has been a very localized phenomenon relying on locally provided services to other members living in close proximity. Yet new social networking and video technologies allows for timebanking to potentially scale regionally or even globally. Brazil-based Bliive, for example, has facilitated the sharing of more than 100,000 hours of expertise in return for time credit through an online platform which connects primarily local timebankers to exchange value and expertise. Although in the case of Bliiive, their technology still primarily facilitates local interactions. My wife, currently enrolled in an Executive MBA program at EADA Business school is leading the development of a platform called the Professional Knowledge Exchange (PKX). This is one of the first timebanking initiatives I have discovered which hopes to leverage technology to connect global professionals. Instead of manual labour or local professional services, PKX aims to connect engineers, doctors, executives and other professionals in a global peer-to-peer network. A paediatrician based in Venezuela could seek expertise from a paediatrician in Brazil regarding most effective treatments of the Zika virus. Or an entrepreneur in Santiago, Chile seeking to launch an electric vehicle car sharing service could use PKX to find an expert from Paris who helped implement their Autolib'service. PKX plans to offer a hybrid model whereby users can choose to timebank or pay per hour of expertise sought. The first known experiments with cryptocurrencies occurred in the Netherlands in the mid-1980s. Yet, cryptocurrencies took off as something of note with the introduction of Bitcoin in 2008. The brainchild of a mysterious and as of yet unidentified person or group of persons, with the pseudonym, Satashio Nakamoto, Bitcoin emerged as a global, digital currency not controlled or supported by any government, i.e. a borderless, digital, alternative currency. Bitcoin is intended to be an anonymous digital currency that allows for transactions between individual without intermediaries. If I own bitcoins and want to buy your computer with bitcoins, we can agree on the value of the computer and I can transfer the Bitcoin equivalent value to you immediately. Thanks to the underlying blockchain technology I will discuss shortly, this transaction is instantaneous and recorded for eternity within the Bitcoin network. Bitcoin is not as weak of a currency as the others described in this essay as it is possible for an individual or group of individuals to accumulate bitcoins or even engage in currency speculation. The Bitcoin protocol has established that there will never be more than 21 million total bitcoins in circulation. The fact that there is a maximum limit could eventually incent investors and speculators to hoard bitcoins in the hopes that hoarding bitcoins could lead to a shortage and drive up their value. As such Bitcoin may appear to be out of context in an essay about alternative currencies as a post capitalist response. In fact, Bitcoin has had some big successes in the start-up community with more than $1 billion (USD) venture capital invested in Bitcoin start-ups since 2012 and $690 million in 2015 alone2. Bitcoin has also gained some traction in terms of owners of bitcoin currency being able to engage in online and physical transactions around the globe. Recently some companies have begun to introduce Bitcoin ATMs as well. Yet, Bitcoin did emerge as part of the 99 per cent movement and the frustration with banks too big to fail and failures of federal governments to implement policies which yield prosperity for all income classes. It is possible that Bitcoin may end up being just another form of market-based capitalism. What is perhaps more intriguing about Bitcoin and its role in facilitating a shift towards post capitalism, is its underlying technology known as blockchain. Blockchain is a distributed ledger technology that simultaneously records every Bitcoin transaction with every node or computer on the system around the globe. Industry experts, such as Goldman Sachs suggest that blockchain tech could eventually be worth tens of billions of dollars in finance, insurance and related industries. Of course this insight from Goldman Sachs does not inspire interest in post-capitalism as it may just help increase the profits of those already engaged in financialization while also contribute to more automation and job losses. However, beyond its impact on mainstream industries operating with market-based capitalistic models, blockchain, and similar derivatives like ethereum, pose significant opportunities for radically new forms of post-capitalist organizing, which I will discuss at the end of this essay. Throughout this essay I have suggested that the post-capitalist movement seeks to leverage technology to facilitate connecting peers (and local businesses) in the hopes of more equitable distribution of income for makers and creators. The sharing economy broadly seeks to facilitate such peer-to-peer transactions (P2P) usually with an intermediary who owns the underlying technology. It may be enlightening to explore one of the highest profile examples of market spaces in this emerging distributed arena and the vast implications for management that emerge. Uber, a global powerhouse of the technologically-enabled taxi service, raised a recent funding round based on a valuation of $62.5 billion making Uber more valuable than General Motors and any other tech company based in Silicon Valley. Yet, Uber has had well publicized problems with regulators around the globe in part due to incumbent resistance (i.e., mainstream taxi fleets), concerns regarding Uber's bypassing taxi regulations for safety of drivers and passengers, and of course concerns about the low income and lack of benefits afforded to drivers. Uber's success to some extent can be attributed to the lack of innovation from taxi operators around the globe. Uber met a latent need for a location-based, highly technologically-enabled transportation service. Initiatives to create what some refer to as a platform coop, such as those of 645 taxi drivers in Denver, Colorado who came together to offer the same innovative service as Uber but without a global platform owner dictating the terms, certainly challenge the dominance of intermediaries like Uber, resulting in more equitable value capture. Yet platform cooperatives are really just an alternative form of governance operating within and competing amongst capitalist enterprises. However, there is another potential response to Uber, driven by blockchain technology which could truly be disruptive and provides insights as to where this space could go. What if technology could facilitate transactions between two parties without the need for an intermediary that may be inclined to take extractive approaches such as those by Uber and Airbnb? Could you design a system with open source software that is developed by the community which facilitates direct transactions between peers without anyone taking a cut? Instead of cooperatives where members share in the ownership of the enterprise, a DAO actually has no owners and no profit share. In theory, 100 per cent of the income from transactions in a DAO can flow to the provider of services with no intermediary taking their cut. The transactions in a DAO could take the form of local currency, digital currency, national currency or a combination. While there is no taxi DAO formed yet, there is certainly talk of them as an alternative, post-capitalist solution to Uber. Other DAOs have been formed recently, such as openbazaar, which seeks to essentially offer the same type of service as eBay, i.e., an online classified ads without a or So you could offer to that computer I but this time and we could agree on a and I would pay you directly for it without anyone like taking a percentage of the In this DAOs are post-capitalist platforms for to exchange without intermediaries. As can be from the taxi there are several emerging in the towards post-capitalism and alternative currencies that be intriguing to management of these how do industry to from post-capitalist models like DAOs if a DAO emerged to Uber, how would it emerging business models which are between market-based and post-capitalist and DAOs as an form that is to private ownership But when a business model is weak currencies, the incentive to accumulate wealth through the maximum of value of transactions This suggests any returns would The DAO a potential the as does the growing insights from the use of The post-capitalism movement to many regarding the shift towards local cooperatives and further challenge of the importance of nation As in the to it that on many social and is at the local and not the such as the United or even the Therefore, and alternative currencies expressed as a manifestation of the 99 per cent movement, suggest a need for or new for why do what they do and with what In a post-capitalist may be by the have no profit in alternative currencies, and only to enable to transactions whereby all value from the transaction will be by the the value. I find it for that the focus of on the that the valuation of tech start-ups when they an and I exploring how the drive for exits of start-ups and short-term profits of publicly traded companies has to and is the emergence of a new economic alternative currencies, in response to the perceived ills by and investors in publicly traded Yet, I it increasingly to the growing being driven by the we find in market-based capitalism while also some for a future where those who actually create value in a peer-to-peer economy share more in the of their contributions with the help of platforms and a growing of alternative currencies. In of Paris it had already a to launch its own alternative, local currency. If the currency, the is Paris would be the and the first capital to launch and support the of an alternative local currency and perhaps be that this movement may just be getting If money is between the and the as perhaps the growing use of alternative currencies is an of to This essay on with most and several with and If this essay has any on or in the it will be largely due to the the had on its and
In most countries, the central bank is required to hold reserve assets as a means of providing credibility for the value of the fiat currency. These assets can be in the form of gold, foreign exchange or some other internationally recognised reserve asset and are held to permit the country to engage in international transactions. Within recent years, cryptocurrencies have been increasingly utilised for international transactions, and it is possible that the use of these cryptocurrencies might expand in the future. This paper therefore examines the potential role of digital currency balances as part of the portfolio of external assets held by a central bank. Using the case of Barbados, the paper also provides a simulation of the effect holding some proportion of their asset-base would have had on the stability of the foreign reserves as well as the return on the portfolio of assets.
Can competition among privately issued fiat currencies such as Bitcoin or Ethereum work? Only sometimes. To show this, we build a model of competition among privately issued fiat currencies. We modify the current workhorse of monetary economics, the Lagos-Wright environment, by including entrepreneurs who can issue their own fiat currencies in order to maximize their utility. Otherwise, the model is standard. We show that there exists an equilibrium in which price stability is consistent with competing private monies, but also that there exists a continuum of equilibrium trajectories with the property that the value of private currencies monotonically converges to zero. These latter equilibria disappear, however, when we introduce productive capital. We also investigate the properties of hybrid monetary arrangements with private and government monies, of automata issuing money, and the role of network effects.
I show that the prices of the internationally traded crypto-currency bitcoin can be used to estimate a currency's unofficial exchange rate and capital controls at a daily interval. Two important bitcoin features are documented: (1) Bitcoin-based exchange rates approximate the behavior, but not the level, of unofficial exchange rates, and (2) Bitcoin prices contain a bitcoin-trend term and must be appropriately normalized prior to being used for this purpose. Bitcoin-based exchange rates reveal that (3) there is no consistent pattern of Granger causality between unofficial rates and official rates by exchange rate regime or barriers at the daily frequency, and (4) that countries can engage in short-interval capital controls.
Bitcoin has become notorious as the first cryptocurrency to gain widespread media attention, however, despite its many benefits over the existing financial system it remains a volatile fringe currency. This thesis examines the validity of bitcoin as a currency and whether it can play a role in circumventing extractive economic and political institutions in developing countries. The analysis compares bitcoin usage to the level of financial openness, the inflation rate, and the percentage of the population with a bank account in 21 different countries. The correlation is found to be both statistically and economically significant for all of these variables, which suggests that bitcoin is being used in countries with underdeveloped financial systems and detrimental monetary policies. A regression run on these variables indicates that a one-percentage-point increase in inflation leads to a 44.48% increase in bitcoin usage, a one-percentage-point increase in the percentage of people in a country that have a bank account leads to an 8.65% decrease in bitcoin usage and a one unit increase in financial openness leads to a 216% decrease in bitcoin usage. Throughout this analysis the positive and negative implications of widespread bitcoin adoption are discussed with respect to economies in the developing world.
Dong He, Karl Habermeier, Ross Leckow, Vikram Haksar · 11 authors
New technologies are driving transformational changes in the global financial system. Virtual currencies (VCs) and the underlying distributed ledger systems are among these. VCs offer many potential benefits, but also considerable risks. VCs could raise efficiency and in the long run strengthen financial inclusion. At the same time, VCs could be potential vehicles for money laundering, terrorist financing, tax evasion and fraud. While risks to the conduct of monetary policy seem less likely to arise at this stage given the very small scale of VCs, risks to financial stability may eventually emerge as the new technologies become more widely used. National authorities have begun to address these challenges and will need to calibrate regulation in a manner that appropriately addresses the risks without stifling innovation. As experience is gained, international standards and best practices could be considered to provide guidance on the most appropriate regulatory responses in different fields, thereby promoting harmonization and cooperation across jurisdictions.
Abstract This paper studies the risk of Bitcoin being used for the purpose of capital flight. We propose a new indicator, the bitcoin‐implied exchange rate discount, to identify empirically capital flight via Bitcoin. Using data from the two largest bitcoin exchanges in the world during our sample period, BTC China and Bitstamp, we find strong evidence of capital flight from the Chinese Renminbi to the US Dollar via Bitcoin before the People's Bank of China, China's central bank, announced its regulatory policy on December 5, 2013, while the evidence displays no trace of capital flight after the announcement. The People's Bank of China's Bitcoin restriction policy successfully halts the illicit capital outflow via Bitcoin, thereby providing valuable policy implications for government regulation on Bitcoin, as well as on other virtual currencies.
This thesis explored, in two parts, the macroeconomic impacts of exchange rate regimes (ERR), as well as the recent developments in fiscal policy and fiscal decentralization. Part I has reconsidered the role of ERR and its interplay with fiscal, monetary and tax policy. The first result that emerges (Chapter 1) is that fixed ERR can serve as a credible policy tool for stabilizing fiscal policy. However, this stabilizing effect is conditional upon the inter-temporal distribution of the costs of loose fiscal policy. In assessing the linkage between ERR and crises (banking/financial, currency and debt), Chapter 2 evidenced that the bipolar view is no longer valid, and that, crisis proneness rather depends on the macroeconomic fundamentals (the volatility of private sector credit, the deficit-financing mechanism, and the debt-to-GDP ratio). In Chapter 3, we unveiled a strong relationship between ERR and tax policy. Countries with pegged regimes have greater reliance on domestic taxation -such as the VAT- to make up for the loss of seigniorage revenue (substitution effect). Moreover, peggers tend to collect more VAT revenue to offset the shortfall in cross border taxes following the trade liberalization reform (competitiveness effect). Part II discussed the cyclical response of fiscal policy in high debt periods, and focused on fiscal decentralization issues. In Chapter 4, we showed that the reaction of fiscal policy to the business cycle is non-linear and conditional to the level of public debt. When the debt-to-GDP ratio goes beyond a certain threshold (87%), fiscal policy loses its counter-cyclical properties. Further, we highlighted that carefully-designed fiscal rules help maintaining counter-cyclicality through an ex ante disciplinary effect. Chapters 5 and 6 analyzed the impact of fiscal decentralization on the efficiency of public service delivery and fiscal policy performance, respectively. Chapter 5 revealed that a sufficient level of expenditure decentralization, coupled with revenue decentralization, improves the efficiency of public service delivery. However, the political and institutional environment is critical for reaping decentralization-led benefits. Lastly, Chapter 6 concluded that fiscal decentralization has destabilizing effect by reducing the counter-cyclicality of fiscal policy. In addition, we found that decentralization strengthens the structural fiscal balance; however, vertical fiscal imbalances reduce the benefits of decentralization. It is therefore critical to limit asymmetries between expenditure and revenue decentralization, so as to reduce the transfer-dependency of local governments to the central level, and thus prevent decentralization from weakening the fiscal stance at the general government level.