This literature review covers hyperinflation in Venezuela, from the 1980s to the present. Particular emphasis is placed on the role of cryptocurrency in the country and how the Venezuelan government has been using crypto, specifically the Petro, as a means to avoid further blunders with hyperinflation. From Hugo Chávez and “Socialism of the 21st Century” to the current regime of Nicolás Maduro, Chávez’ successor, the printing of money in Venezuela has sky-rocketed to the point of the government needing cryptocurrency, such as Bitcoin, as a means of circumventing inflation to fund the government’s ambitious social projects. A key element in its success, however, will be whether the Venezuelan people will opt to use the government-backed Petro, or whether they will opt to use a different, decentralized alternative digital currency to avoid the perils of hyperinflation. The paper will examine this issue from several diverse points of view: specifically, the Austrian School (Echarte Fernández, Hernández, & Zambrano, 2018), the neo-Keynesian school (Pagliacci & Barráez, 2010), and public policy and institutional perspective (Corrales, 1999). The use of cryptocurrencies by governments, in particular socialist governments, is a new occurrence and merits much attention for the future of public and monetary policy in those countries.
We rationalize cryptocurrency adoption in a small open economy model. We show that digital dollarization, where stablecoins pegged to the USD are used for transactions, can improve social welfare. In contrast, the adoption of volatile cryptocurrencies, such as El Salvador’s 2021 decision to make Bitcoin legal tender, results in welfare losses. This outcome aligns with the observed low take-up of Bitcoin as legal tender. The welfare benefits of digital dollarization increase with the magnitude of macroeconomic shocks, providing motivation for the growing use of stablecoins in emerging markets as a safeguard against high inflation and macroeconomic instability .
Abdelkader Derbali, Lamia Jamel, Monia Ben Ltaifa, Ahmed K. Elnagar · 5 authors
Purpose This paper provides an important perspective to the predictive capacity of Fed and European Central Bank (ECB) meeting dates and production announcements for the dynamic conditional correlation (DCC) between Bitcoin and energy commodities returns and volatilities during the period from August 11, 2015 to March 31, 2018. Design/methodology/approach To assess empirically the unanticipated component of the US and ECB monetary policy, the authors pursue the Kuttner's approach and use the federal funds futures and the ECB funds futures to assess the surprise component. The authors use the approach of DCC as introduced by Engle (2002) during the period from August 11, 2015 to March 31, 2018. Findings The authors’ results suggest strong significant DCCs between Bitcoin and energy commodity markets if monetary policy surprises are incorporated in variance. These results confirmed the financialization of Bitcoin and commodity energy markets. Finally, the DCC between Bitcoin and energy commodity markets appears to respond considerably more in the case of Fed surprises than ECB surprises. Originality/value This study is a crucial topic for policymakers and portfolio risk managers.
Abstract Crypto currencies have sparked great interest lately not only among regular people, billionaires and Wall Street, but it also caught the attention of national and global financial regulators across the world. In this article, we try to answer the following questions: what is bitcoin? It is money, a mean of payment, a huge bubble or just a way to evade taxes, launder money and fund illegal trade? We will answer these questions by testing whether bitcoin is a bubble with the help of right-tailed ADF tests and analyzing if the price of bitcoin has experienced shocks. We identify bitcoin price shock when the price of bitcoin is above its Hodrick-Prescott trend plus one standard deviation. Also, we will analyze if bitcoin fulfils the roles of money and if itself or a stablecoin like Libra can attain an important place within the international monetary system. We will also research the potential risks associated with the adoption of Libra, especially in poorer countries. Despite Bitcoin and Libra’s weaknesses, an advantage is that they insist on the necessity of faster and cheaper cross-border funds transfers 24/7, 365 days a year.
Finansal piyasaların ilgi noktasını oluşturan kripto para birimlerinden bitcoin’in para birimi olarak yayılması ve kullanılmasından sonra herkesin aklında, bitcoin’in bir yatırım aracı olarak ya da hedge enstrümanı olarak değerlendirilip değerlendirilemeyeceği sorusu yer almaya başlamıştır. Çalışmada kripto para birimlerinden en çok işlem hacmine sahip olan bitcoin’in alternatif yatırım araçları arasında uzun dönemli ilişkilerini ortaya koymak için istatistiki analiz yapılmış ve bununla ilgili bulgular tartışılmıştır. Birçok kripto para olmasına karşın Bitcoin’in her açısından önde gelmesi nedeniyle, bitcoin ile alternatif yatırım araçları arasında bir eş bütünleşmenin olup olmadığı ARDL testi ile ortaya koyulmaya çalışılmıştır. Çalışmada Bitcoin ile alternatif yatırım araçları arasında geniş kapsamda ele alan salt bir çalışma görülmediğinden dolayı bu çalışmanın yapılmasına karar verilmiştir.
Robert Mundell (1961 Mundell, R. A. 1961. “A Theory of Optimum Currency Areas.” The American Economic Review 51 (4): 657–665.[Web of Science ®] , [Google Scholar]. “A Theory of Optimum Currency Areas.” The American Economic Review 51 (4): 657–665) framed the fixed-versus-flexible exchange rate controversy in a novel way when he focused attention on currency areas and the ingredients necessary for a group of nations to form an optimal currency area (OCA). This paper proposes an analogous theory for cryptocurrencies, called optimal currency scope (OCS), and explains the conditions necessary for an OCS to exist. In contrast to an OCA, which is defined by its non-overlapping geographic areas, an OCS is defined by its multiple-overlapping attributes and the needs they solve, which we call scope. Scopes are not geographic and have fuzzy boundaries; so, the possibility of competing currencies in a single scope needs to be considered. The central issues surrounding an OCS are the optimal number and magnitude of currency attributes, rather than whether nations should adopt fixed versus fluctuating exchange rates. Similar to the findings since Mundell first introduced his OCA Theory, we find that the optimum number of cryptocurrency attributes and, therefore, the optimal number of cryptocurrencies must be determined empirically rather than theoretically.
The paper highlights why, contrary to frequent claims, cryptocurrencies will not replace the existing monetary system. The reason is that despite its shortcomings the current monetary system is a product of a long evolution which had adjusted it to the needs of the economy. Cryptocurrencies will probably remain what they have been during the last decade, i.e. the popular speculative assets and the means of payment used – due to their anonymity – for illicit operations. The recent monetary system, based on deposit money issued by commercial banks, will not be replaced also by deposit money issued by central banks (Central Bank Digital Currency) as the CBDC would lack a rational mechanism of its allocation and would pose risks to financial stability
The Holy Grail of a decentralised stablecoin is achieved on rigorous\nmathematical frameworks, obtaining multiple advantageous proofs: stability,\nconvergence, truthfulness, faithfulness, and malicious-security. These\nproperties could only be attained by the novel and interdisciplinary\ncombination of previously unrelated fields: model predictive control, deep\nlearning, alternating direction method of multipliers (consensus-ADMM),\nmechanism design, secure multi-party computation, and zero-knowledge proofs.\nFor the first time, this paper proves:\n - the feasibility of decentralising the central bank while securely\npreserving its independence in a decentralised computation setting\n - the benefits for price stability of combining mechanism design, provable\nsecurity, and control theory, unlike the heuristics of previous stablecoins\n - the implementation of complex monetary policies on a stablecoin, equivalent\nto the ones used by central banks and beyond the current fixed rules of\ncryptocurrencies that hinder their price stability\n - methods to circumvent the impossibilities of Guaranteed Output Delivery\n(G.O.D.) and fairness: standing on truthfulness and faithfulness, we reach\nG.O.D. and fairness under the assumption of rational parties\n As a corollary, a decentralised artificial intelligence is able to conduct\nthe monetary policy of a stablecoin, minimising human intervention.\n
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Therefore, Bitcoin is a form of digital currency that was designed by Satoshi Nakamoto (an unknown author of Bitcoin white paper 2008) and since then it has able to generate a considerable attention from investors due to its decentralized characteristics and the technology (block-chain) behind it. Bitcoin is a form of digital peer-to-peer currency system where transactions take place without a central bank. The transactions are verified by the nodes of the network and recorded in the Blockchain. Since the popularization of Bitcoin, this technology has caught attention of several technology companies who started to do research on the applications and opportunities of this technology. In this paper, an attempt has been made to capture the time varying variance of most prominent Cryptocurrency Bitcoin with world’s top traded currencies such as USD, GBP, Euro, Yen and CHF. In order to realise the stated objectives the researchers have collected the data from Prowess and Yahoo finance database from September 2013 till March 2018. In the first phase the collected data has been for normality and stationarity. Bitcoin was modelled for GARCH and EGARCH tests to capture the time varying volatility and leverage effect. Later the Johansen cointegration test has been conducted to find out the existence of cointegration between the top global currencies with Bitcoin. In the last phase the VECM has been run to capture the both long run and short relationship between Bitcoin and top five traded currencies. In the last phase Variance Decomposition has been run to capture the variance explained by the prominent global currencies on Bitcoin. Both USD and GBP share long run relationship with Bitcoin. Finally, the results have been compared with the possible evidence.
Even though the empirical literature on safe haven properties of different assets with respect to financial risks is increasing, their abilities to safeguard against political risks has not been the subject of large empirical investigations. This paper uses an Empirical Mode Decomposition-based approach to look into the time-varying role of different assets (in particular, oil, precious metals and Bitcoin) as a safe haven against U.S. stocks in times of heightened uncertainty surrounding the outcome of the 2016 U.S. presidential election. Our results suggest that oil can act as an effective safe haven against political risk exposure; but such property varies over time. The abilities of gold and silver to provide positive returns during downturns have been also documented in the medium-and the long-term. Bitcoin also serves as a safe haven against U.S. stock losses but in the short-term. These findings provide useful and relevant information to investors to help ensure better asset allocation in an uncertain environment.
The paper investigates whether Bitcoin is a good predictor of the Standard & Poor’s 500 Index. To answer this question we compare alternative models using a point and density forecast relying on Dynamic Model Averaging (DMA) and Dynamic Model Selection (DMS). According to our results, Bitcoin does not show any direct impact on the predictability of Standard & Poor’s 500 for the considered sample.
We consider a setting where agents can choose between two currencies to conduct their goods purchases. The usage of either currency comes with currency-specific transactions costs. For example, purchasing some goods with cryptocurrencies rather than dollars is easier and may avoid taxes. We explore an extension of Schilling-Uhlig (2019), allowing for asymmetry in transaction costs as well as dollar-bitcoin exchange fees. Agents alternate in their role as buyers and sellers, necessitating currency. A central bank steers the dollar inflation path, while bitcoins are in fixed supply. We characterize the nonstochastic equilibrium and the resulting exchange rate dynamics.
This article considers the problem of testing for an explosive bubble in financial data in the presence of time-varying volatility. We propose a sign-based variant of the Phillips, Shi, and Yu (2015, International Economic Review 56, 1043–1077) test. Unlike the original test, the sign-based test does not require bootstrap-type methods to control size in the presence of time-varying volatility. Under a locally explosive alternative, the sign-based test delivers higher power than the original test for many time-varying volatility and bubble specifications. However, since the original test can still outperform the sign-based one for some specifications, we also propose a union of rejections procedure that combines the original and sign-based tests, employing a wild bootstrap to control size. This is shown to capture most of the power available from the better performing of the two tests. We also show how a sign-based statistic can be used to date the bubble start and end points. An empirical illustration using Bitcoin price data is provided.
İbrahim Korkmaz Kahraman, Habib Küçükşahin, Emin ÇAĞLAK
Getirilerin normal dağıldığı varsayımını temel alan öngörü modelleri sığ piyasalarda yeterince başarılı performans sergileyememektedir. Bu modeller, özellikle yüksek oynaklık gösteren piyasalarda ulaşılabilecek uç noktaların öngörüsünde daha fazla başarısızlık göstermekte ve bu durum da yatırımcıları volatilite tahminlemesine yöneltmektedir. Bahsedilen durumlar çerçevesinde, çalışmada finansal yatırımcılar için alternatif yatırım aracı olarak görülen ve piyasalarında yüksek oynaklıkların görüldüğü kripto paraların volatilite tahmininde Tekil Oynaklık Modelleri (ARCH, GARCH, T-GARCH, GARCH-M, E-GARCH, I-GARCH) ile uzun hafıza modelleri (AP-GARCH ve C-GARCH) kullanılmıştır. Ayrıca oynaklık tahmini için yararlanılan modeller arasından en uygun model test edilmeye çalışılmıştır. Bu bağlamda, kripto para piyasası içerisinde en yüksek piyasa değerine sahip, Bitcoin, Ethereum ve Ripple para birimlerinin 24/08/2016-07/05/2018 tarihleri arası fiyat verilerinden yararlanılmıştır. Araştırma sonuçlarına göre, Bitcoin ve Ethereum için şokların volatilite etkisi kalıcı ve pozitif şokların etkisi negatif şokların etkisinden daha fazla iken Ripple için şokların volatiliteye etkisi geçici karakterde ve oynaklığın geçişkenliği kısa dönemli olmaktadır.
Bitcoin and other cryptocurrencies have been frequently on media lately. As these cryptocurrencies are relatively new, there are not much economic theory explaining their behavior and price developments. Due to these reasons, the goal of this thesis is to find an economic theory to study the demand for Bitcoin. \n \nIn this thesis, I will write about Bitcoin applying it to Walsh’s Money in Utility function (MIU function). I will modify Walsh’s original model by incorporating Bitcoin to it. In this model, Bitcoin is used as payment method and as a store of value. Both Bitcoin and money can be used to buy any goods, but there are certain goods that are easier to buy using bitcoin. Hence, Bitcoin has transaction benefit and the households will always need some bitcoin holdings in their portfolio. Using Walsh’s MIU function, I will derive a demand function for Bitcoin. \n \nIn addition to this, I will go through the working paper “Bitcoin Pricing, Adoption, and Usage: Theory and Evidence” written by Athey et Al. (August 2016). In this paper, Bitcoin is used both as a payment method and a store of value. From the findings by Athey et Al., Bitcoin seems to be mainly used as a store of value. I will present an overview of the paper including the results and then concentrate on their aggregate analysis on Bitcoin exchange rate. \n \nBased on the Bitcoin exchange rate equation presented by Athey et Al., I will study whether Bitcoin demand function derived from MIU model is able to explain the changes in Bitcoin’s aggregate demand in real market. As expected, due to the assumptions and restrictions of the model, Bitcoin demand function derived in this thesis is not able to fully explain the changes in demand for Bitcoin in real world. Nonetheless, subject to the assumptions and restrictions of the model, Bitcoin demand function can be used to study the relationship between bitcoin demand, domestic nominal interest rate and consumption. Finally, I will present an alternative approach to further study Bitcoin’s demand.
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.