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Banning bitcoin

Listed author(s):
  • Hendrickson, Joshua R.
  • Luther, William J.

We employ a monetary model with endogenous search and random consumption preferences to consider the extent to which a government can ban an alternative currency, like bitcoin. We define a ban as a policy whereby government agents refuse to accept an alternative currency and mete out punishments to private agents caught using it. After identifying monetary equilibria where an alternative currency is accepted, we then derive the conditions under which a ban might deter its use. As in earlier studies, we show that a government of sufficient size can prevent an alternative currency from circulating without relying on punishments. We also show that, given its size, a government can ban an alternative currency so long as it is willing and able to mete out sufficiently severe punishments.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167268117301798
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 141 (2017)
Issue (Month): C ()
Pages: 188-195

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Handle: RePEc:eee:jeborg:v:141:y:2017:i:c:p:188-195
DOI: 10.1016/j.jebo.2017.07.001
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Aiyagari, S. Rao & Wallace, Neil, 1997. "Government Transaction Policy, the Medium of Exchange, and Welfare," Journal of Economic Theory, Elsevier, vol. 74(1), pages 1-18, May.
  2. repec:eme:aaeczz:s1529-213420140000018008 is not listed on IDEAS
  3. Lotz, Sebastien & Rocheteau, Guillaume, 2002. "On the Launching of a New Currency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 563-588, August.
  4. François Velde, 2013. "Bitcoin: a primer," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Dec.
  5. Selgin, George A, 1994. "On Ensuring the Acceptability of a New Fiat Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 808-826, November.
  6. Joshua R. Hendrickson & Thomas L. Hogan & William J. Luther, 2016. "The Political Economy Of Bitcoin," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 925-939, 04.
  7. David Yermack, 2013. "Is Bitcoin a Real Currency? An economic appraisal," NBER Working Papers 19747, National Bureau of Economic Research, Inc.
  8. William J. Luther, 2016. "Cryptocurrencies, Network Effects, And Switching Costs," Contemporary Economic Policy, Western Economic Association International, vol. 34(3), pages 553-571, 07.
  9. Aaron Yelowitz & Matthew Wilson, 2015. "Characteristics of Bitcoin users: an analysis of Google search data," Applied Economics Letters, Taylor & Francis Journals, vol. 22(13), pages 1030-1036, September.
  10. Jesús Fernández-Villaverde & Daniel Sanches, 2016. "Can Currency Competition Work?," NBER Working Papers 22157, National Bureau of Economic Research, Inc.
  11. William J. Luther, 2013. "Friedman Versus Hayek on Private Outside Monies: New Evidence for the Debate," Economic Affairs, Wiley Blackwell, vol. 33(1), pages 127-135, 02.
  12. Christopher J. Waller & Elisabeth S. Curtis, 2003. "Currency restrictions, government transaction policies and currency exchange," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(1), pages 19-42, 01.
  13. Li, Yiting & Wright, Randall, 1998. "Government Transaction Policy, Media of Exchange, and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 290-313, August.
  14. Dean Corbae & Ted Temzelides & Randall Wright, 2002. "Matching and Money," American Economic Review, American Economic Association, vol. 92(2), pages 67-71, May.
  15. Rainer Böhme & Nicolas Christin & Benjamin Edelman & Tyler Moore, 2015. "Bitcoin: Economics, Technology, and Governance," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 213-238, Spring.
  16. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
  17. Dean Corbae & Ted Temzelides & Randall Wright, 2003. "Directed Matching and Monetary Exchange," Econometrica, Econometric Society, vol. 71(3), pages 731-756, 05.
  18. George Selgin, 2003. "Adaptive Learning and the Transition to Fiat Money," Economic Journal, Royal Economic Society, vol. 113(484), pages 147-165, January.
  19. Goldberg, Dror, 2007. "Money with partially directed search," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 979-993, May.
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