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Identifier to cite or link to this item: https://hdl.handle.net/10086/26940

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Title
Can We Stabilize the Price of a Cryptocurrency?: Understanding the Design of Bitcoin and Its Potential to Compete with Central Bank Money
Creator
Creator Name
Iwamura, Mitsuru Iwamura, Mitsuru
Affiliation
Affiliation Name
Waseda University
Creator Name
Kitamura, Yukinobu Kitamura, Yukinobu
Affiliation
Affiliation Name
Hitotsubashi University
Creator Name
Matsumoto, Tsutomu Matsumoto, Tsutomu
Affiliation
Affiliation Name
Yokohama National University
Creator Name
Saito, Kenji Saito, Kenji
Affiliation
Affiliation Name
Keio University
Editor
Contributor Name
Institute of Economic Research, Hitotsubashi University
Key Word
Bitcoin
Cryptocurrency
Currency competition
Friedrich A. Hayek
Proof of work
JEL
B31
E42
E51
Abstract
This paper discusses the potential and limitations of Bitcoin as a digital currency. Bitcoin as a digital asset has been extensively discussed from the viewpoints of engineering and security design. But there are few economic analyses of Bitcoin as a currency. Bitcoin was designed as a payments vehicle and as a store of value (or speculation). It has no use bar as money or currency. Despite recent enthusiasm for Bitcoin, it seems very unlikely that currencies provided by central banks are at risk of being replaced, primarily because of the market price instability of Bitcoin (i.e. the exchange rate against the major currencies). We diagnose the instability of market price of Bitcoin as being a symptom of the lack of flexibility in the Bitcoin supply schedule ‐ a predetermined algorithm in which the proof of work is the major driving force. This paper explores the problem of instability from the viewpoint of economics and suggests a new monetary policy rule (i.e. monetary policy without a central bank) for stabilizing the values of Bitcoin and other cryptocurrencies.
Publisher
Institute of Economic Research, Hitotsubashi University
Issued Date
2014-11
Language
English(eng)
Resource Type
technical report
Version Type
VoR
Is Part OfRelation -
Related Title
Discussion paper series. A ; No. 617
Relation
Related Identifier
URI
  http://www.ier.hit-u.ac.jp/English/
NCID
AA11476336
Number of Pages
31
Appears in Collections
Discussion paper series / Institute of Economic Research, Hitotsubashi University
URL
https://hdl.handle.net/10086/26940