Monetary theory reversed: Virtual currency issuance and the inflation tax

Luca Marchiori ()

Journal of International Money and Finance, 2021, vol. 117, issue C

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.

Keywords: Virtual currency; Fiat money; Inflation tax; Money supply (search for similar items in EconPapers)
JEL-codes: E41 E42 E51 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621000929

DOI: 10.1016/j.jimonfin.2021.102441

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