 Libra or Librae? Basket based stablecoins to mitigate foreign exchange volatility spilloversPaolo Giudici, Thomas Leach and Paolo Pagnottoni Finance Research Letters, 2022, vol. 44, issue C Abstract: The paper aims to assess, from an empirical viewpoint, the advantages of a stablecoin whose value is derived from a basket of underlying currencies, against a stablecoin which is pegged to the value of one major currency, such as the dollar. To this aim, we first find the optimal weights of the currencies that can comprise our basket. We then employ volatility spillover decomposition methods to understand which foreign currency mostly drives the others. We then look at how the stability of either stablecoin is affected by currency shocks by means of spillover networks built on VAR models. Our empirical findings show that our basket based stablecoin is less volatile than all single currencies. This result is fundamental for policy making, and especially for emerging markets with a high level of remittances: a Librae (basket based stablecoin) can preserve their value during turbolent times better than a Libra (single currency based stablecoin). Keywords: Cryptocurrencies; Fintech; Stablecoins; Spillover; Variance decomposition (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001355 DOI: 10.1016/j.frl.2021.102054 Access Statistics for this article Finance Research Letters is currently edited by R. Gençay More articles in Finance Research Letters from Elsevier |
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