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Monetary theory reversed: Virtual currency issuance and miners’ remuneration

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  • Luca Marchiori

Abstract

This study analyzes the macroeconomic implications of virtual currency issuance. It builds on a standard cash-in-advance model extended with (i) ‘virtual’ goods, sold against virtual currency, and (ii) miners, the agents providing payment services. The main finding is that virtual currency growthmay have effects opposite to those predicted by monetary theory when miners are rewarded with newly created coins. Declining currency issuance, as in Bitcoin, raises the price of virtual goods, which counteracts the traditional impact of a reduced inflation tax. The paper also shows how fiat money growth affects the welfare effects of virtual currency creation.

Suggested Citation

  • Luca Marchiori, 2018. "Monetary theory reversed: Virtual currency issuance and miners’ remuneration," BCL working papers 115, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp115
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    File URL: https://www.bcl.lu/en/publications/Working-papers/115/BCLWP115.pdf
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    References listed on IDEAS

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    1. Monetary theory reversed: Virtual currency issuance and miners’ remuneration
      by Christian Zimmermann in NEP-DGE blog on 2018-03-14 09:51:01

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    1. Julián A. Parra & Carlos Arango - Joaquín Bernal & José E. Gómez - Javier Gómez & Carlos León - Clara Machado & Daniel Osorio - Daniel Rojas & Nicolás Suárez - Eduardo Yanquen, 2019. "Criptoactivos: análisis y revisión de literatura," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, issue 92, pages 1-37, November.

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    More about this item

    Keywords

    Cash-in-advance; virtual currency; fiat money; 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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