Cryptocurrencies, Currency Competition, and The Impossible Trinity
Linda Marlene Schilling and
Harald Uhlig ()
No 13943, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable.
Keywords: cryptocurrency; currency competition; Exchange Rates; impossible trinity; independent monetary policy; uncovered interest parity (search for similar items in EconPapers)
JEL-codes: D53 E4 F31 G12 (search for similar items in EconPapers)
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Working Paper: Cryptocurrencies, Currency Competition, and the Impossible Trinity (2019)
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