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On the value of virtual currencies

Author

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). 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," DNB Working Papers 521, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:521
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20521_tcm46-346438.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nicole Jonker, 2018. "What drives bitcoin adoption by retailers," DNB Working Papers 585, Netherlands Central Bank, Research Department.
    2. repec:nbb:ecrart:y:2017:m:june:i:i:p:79-92 is not listed on IDEAS
    3. Ben Fung & Hanna Halaburda, 2016. "Central Bank Digital Currencies: A Framework for Assessing Why and How," Discussion Papers 16-22, Bank of Canada.
    4. repec:eee:moneco:v:95:y:2018:i:c:p:86-96 is not listed on IDEAS
    5. Christopher S. Henry & Kim P. Huynh & Gradon Nicholls, 2017. "Bitcoin Awareness and Usage in Canada," Staff Working Papers 17-56, Bank of Canada.

    More about this item

    Keywords

    virtual currencies; exchange rates; payment systems; speculation; bitcoin;

    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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