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Monetary theory reversed: Virtual currency issuance and miners’ remuneration

Luca Marchiori ()

No 115, BCL working papers from Central Bank of Luxembourg

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.

Keywords: Cash-in-advance; virtual currency; fiat money; money supply (search for similar items in EconPapers)
JEL-codes: E41 E42 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-pay
Date: 2018-02
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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp115

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