Cryptocurrencies, Currency Competition, and the Impossible Trinity /
Benigno, Pierpaolo.
Cryptocurrencies, Currency Competition, and the Impossible Trinity / Pierpaolo Benigno, Linda M. Schilling, Harald Uhlig. - Cambridge, Mass. National Bureau of Economic Research 2019. - 1 online resource: illustrations (black and white); - NBER working paper series no. w26214 . - Working Paper Series (National Bureau of Economic Research) no. w26214. .
August 2019.
We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Cryptocurrencies, Currency Competition, and the Impossible Trinity / Pierpaolo Benigno, Linda M. Schilling, Harald Uhlig. - Cambridge, Mass. National Bureau of Economic Research 2019. - 1 online resource: illustrations (black and white); - NBER working paper series no. w26214 . - Working Paper Series (National Bureau of Economic Research) no. w26214. .
August 2019.
We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.