Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148149
Authors: 
Bolt, Wilko
van Oordt, Maarten R. C.
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper 2016-42
Abstract: 
This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators' beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread use of virtual currency.
Subjects: 
Asset pricing
E-money
Exchange rates
JEL: 
E42
E51
F31
G1
Document Type: 
Working Paper

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