Economics at your fingertips  

The Cost of Information in the Blockchain: A Discussion of Routledge and Zetlin-Jones

Bruno Sultanum ()

No 21-02, Working Paper from Federal Reserve Bank of Richmond

Abstract: The volatility of crypto currencies hinders their ability to be media of exchange or stores of value, leading to the implementation of exchange-rate pegs in an attempt to stabilize these currencies. This strategy has been used by crypto currencies such as US Dollar Tether, Steem Backed Dollar and TrueUSD; and was previously adopted in countries such as Brazil, Mexico and Argentina. However, an exchangerate peg is vulnerable to speculative attacks if it is not 100% backed by reserves, as discussed in Obstfeld (1996). Using insights from the bank-run literature, Routledge and Zetlin-Jones (2018) build on Green and Lin (2003) and propose a model of speculative attacks. They show that adjustments to the exchange rate can prevent speculative attacks in equilibrium. They also show how to implement such contracts using blockchain technology. In this discussion paper, I provide a cautionary tale. I show also in a version of Green and Lin (2003) that the information content in the blockchain prevents agents from attaining all the gains from risk sharing— highlighting the downsides of too much public information.

Keywords: Blockchain; Currencies; Information (search for similar items in EconPapers)
Pages: 13
Date: 2021-01-21
New Economics Papers: this item is included in nep-ban and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... ers/2021/wp21-02.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by ().

Page updated 2021-05-09
Handle: RePEc:fip:fedrwp:90439