Some simple bitcoin economics

Linda Schilling and Harald Uhlig ()

Journal of Monetary Economics, 2019, vol. 106, issue C, 16-26

Abstract: We provide a model of an endowment economy with two competing, but intrinsically worthless currencies (Dollar, Bitcoin). Dollars are supplied by a central bank to achieve its inflation target, while the Bitcoin supply grows deterministically. Our fundamental pricing equation implies in its simplest form that Bitcoin prices form a martingale. “Mutual impatience” implies absence of speculation. Price volatility therefore does not invalidate the medium-of-exchange function. Bitcoin block rewards are not a tax on Bitcoin holders: they are financed with a Dollar tax. We discuss monetary policy implications, Bitcoin production, taxation, welfare and entry, and characterize the range of equilibria.

Keywords: Cryptocurrency; Bitcoin; Exchange rates; Currency competition (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (168)

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Working Paper: Some simple Bitcoin Economics (2018)
Working Paper: Some Simple Bitcoin Economics (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:106:y:2019:i:c:p:16-26

DOI: 10.1016/j.jmoneco.2019.07.002

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