Ecole Polytechnique CREST
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Institutional Affiliation: Ecole Polytechnique CREST
Information about this author at RePEc
NBER Working Papers and Publications
|August 2019||Cryptocurrencies, Currency Competition, and the Impossible Trinity|
with Pierpaolo Benigno, Harald Uhlig: w26214
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.
|April 2018||Some Simple Bitcoin Economics|
with Harald Uhlig: w24483
In a novel model of an endowment economy, we analyze coexistence and competition between traditional fiat money (Dollar) and another intrinsically worthless medium of exchange, not controlled by a central bank, such as Bitcoin. Agents can trade consumption goods in either currency or hold on to currency for speculative purposes. A central bank ensures a Dollar inflation target, while Bitcoin mining is decentralized via proof-of-work. We analyze Bitcoin price evolution and interaction between the Bitcoin price and monetary policy which targets the Dollar. We obtain a fundamental pricing equation, which in its simplest form implies that Bitcoin prices form a martingale. We derive conditions, under which Bitcoin speculation cannot happen, and the fundamental pricing equation must hold. We sho...
Published: Linda Schilling & Harald Uhlig, 2019. "Some simple Bitcoin Economics," Journal of Monetary Economics, . citation courtesy of