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On the Value of Virtual Currencies

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Listed:
  • Wilko Bolt
  • Maarten van Oordt

Abstract

This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators’ beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread use of virtual currency.

Suggested Citation

  • Wilko Bolt & Maarten van Oordt, 2016. "On the Value of Virtual Currencies," Staff Working Papers 16-42, Bank of Canada.
  • Handle: RePEc:bca:bocawp:16-42
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    More about this item

    Keywords

    Asset Pricing; E-Money; Exchange rates;
    All these keywords.

    JEL classification:

    • 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
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G1 - Financial Economics - - General Financial Markets

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