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Monetary theory reversed: Virtual currency issuance and the inflation tax

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  • Marchiori, Luca

Abstract

This study develops a monetary model featuring (i) ‘virtual’ goods, sold against virtual currency, and (ii) agents providing payment services (miners), remunerated with newly issued virtual currency. Virtual money growth may have effects opposite to those predicted by monetary theory. Declining virtual currency issuance, like in Bitcoin, raises the price of virtual goods, which counteracts the traditional impact of a reduced inflation tax. The paper also shows that welfare improves as virtual currency issuance decreases, but only if the virtual currency growth rate is sufficiently larger than the fiat money growth rate.

Suggested Citation

  • Marchiori, Luca, 2021. "Monetary theory reversed: Virtual currency issuance and the inflation tax," Journal of International Money and Finance, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621000929
    DOI: 10.1016/j.jimonfin.2021.102441
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    References listed on IDEAS

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    3. Michiel Bijlsma & Carin Cruijsen & Nicole Jonker & Jelmer Reijerink, 2024. "What Triggers Consumer Adoption of Central Bank Digital Currency?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(1), pages 1-40, February.

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    More about this item

    Keywords

    Virtual currency; Fiat money; Inflation tax; Money supply;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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