Currency Stability Using Blockchain Technology

Bryan Routledge and Ariel Zetlin-Jones
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Bryan Routledge: Carnegie Mellon University

No 1160, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Arbitrary speculative attacks on currencies can arise from self-fulfilling expectations. This is a well-studied source of currency crises. In this paper, we show that blockchain distributed ledger technologies, such as those which support Bitcoin and Ethereum, can be adapted to eliminate self-fulfilling speculative attacks on a currency. We show how to develop a stable currency peg, such as Pesos to Dollars, using a cryptocurrency. We show the peg is immune to speculative attacks arising from self-fulfilling prophecies and estimate the size of reserves and transaction costs needed to support the peg.

Date: 2018
New Economics Papers: this item is included in nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:1160

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