Cryptocurrencies, Currency Competition, and The Impossible Trinity

Benigno, Pierpaolo; Uhlig, Harald; Schilling, Linda M. (August 2019). Cryptocurrencies, Currency Competition, and The Impossible Trinity (Discussion Paper 13943). CEPR - Centre for Economic Policy research

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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.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Benigno, Pierpaolo

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

0265-8003

Series:

Discussion Paper

Publisher:

CEPR - Centre for Economic Policy research

Language:

English

Submitter:

Dino Collalti

Date Deposited:

15 Apr 2020 10:50

Last Modified:

15 Apr 2020 10:50

JEL Classification:

E4, F31, D53, G12

BORIS DOI:

10.7892/boris.142194

URI:

https://boris.unibe.ch/id/eprint/142194

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