IDEAS home Printed from https://ideas.repec.org/a/taf/oaefxx/v4y2016i1p1147119.html
   My bibliography  Save this article

Should cryptocurrencies be included in the portfolio of international reserves held by central banks?

Author

Listed:
  • Winston Moore
  • Jeremy Stephen
  • Caroline Elliott

Abstract

In most countries, the central bank is required to hold reserve assets as a means of providing credibility for the value of the fiat currency. These assets can be in the form of gold, foreign exchange or some other internationally recognised reserve asset and are held to permit the country to engage in international transactions. Within recent years, cryptocurrencies have been increasingly utilised for international transactions, and it is possible that the use of these cryptocurrencies might expand in the future. This paper therefore examines the potential role of digital currency balances as part of the portfolio of external assets held by a central bank. Using the case of Barbados, the paper also provides a simulation of the effect holding some proportion of their asset-base would have had on the stability of the foreign reserves as well as the return on the portfolio of assets.

Suggested Citation

  • Winston Moore & Jeremy Stephen & Caroline Elliott, 2016. "Should cryptocurrencies be included in the portfolio of international reserves held by central banks?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1147119-114, December.
    • Handle: RePEc:taf:oaefxx:v:4:y:2016:i:1:p:1147119
    DOI: 10.1080/23322039.2016.1147119
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23322039.2016.1147119
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/23322039.2016.1147119?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Joshua S. Gans & Hanna Halaburda, 2015. "Some Economics of Private Digital Currency," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 257-276, National Bureau of Economic Research, Inc.
    2. Aleksander Berentsen, 1998. "Monetary Policy Implications of Digital Money," Kyklos, Wiley Blackwell, vol. 51(1), pages 89-118, February.
    3. Joshua Aizenman & Jaewoo Lee, 2007. "International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence," Open Economies Review, Springer, vol. 18(2), pages 191-214, April.
    4. repec:bla:kyklos:v:51:y:1998:i:1:p:89-117 is not listed on IDEAS
    5. Aizenman, Joshua & Sun, Yi, 2012. "The financial crisis and sizable international reserves depletion: From ‘fear of floating’ to the ‘fear of losing international reserves’?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 250-269.
    6. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    7. Hongjun Li & Zhongjian Lin & Cheng Hsiao, 2015. "Testing purchasing power parity hypothesis: a semiparametric varying coefficient approach," Empirical Economics, Springer, vol. 48(1), pages 427-438, February.
    8. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
    9. Mr. Wendell A. Samuel & Emilio Pineda & Mr. Mario Dehesa, 2009. "Optimal Reserves in the Eastern Caribbean Currency Union," IMF Working Papers 2009/077, International Monetary Fund.
    10. Olivier Jeanne, 2007. "International Reserves in Emerging Market Countries: Too Much of a Good Thing?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 1-80.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sarika Murty & Vijay Victor & Maria Fekete-Farkas, 2022. "Is Bitcoin a Safe Haven for Indian Investors? A GARCH Volatility Analysis," JRFM, MDPI, vol. 15(7), pages 1-13, July.
    2. Pattnaik, Debidutta & Hassan, M. Kabir & Dsouza, Arun & Tiwari, Aviral & Devji, Shridev, 2023. "Ex-post facto analysis of cryptocurrency literature over a decade using bibliometric technique," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    3. Sean Foley & Jonathan R Karlsen & Tālis J Putniņš, 2019. "Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1798-1853.
    4. Andrew Clark & Alexander Mihailov, 2019. "Why private cryptocurrencies cannot serve as international reserves but central bank digital currencies can," Economics Discussion Papers em-dp2019-09, Department of Economics, University of Reading.
    5. Panagiotidis, Theodore & Stengos, Thanasis & Vravosinos, Orestis, 2019. "The effects of markets, uncertainty and search intensity on bitcoin returns," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 220-242.
    6. Santhoshi Gondesi & Kameswari Jada & Ramesh Palisetty & Veena Ishwarappa Bhavikatti & Omnamasivaya Boddeda & Chaitanya Gorli & Tejaswini Bastray & Sony Hiremath, 2024. "Digital currency: an empirical study analyzing its effectiveness in the banking sector," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 15(11), pages 5182-5195, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joshua Aizenman & Brian Pinto, 2013. "Managing Financial Integration and Capital Mobility—Policy Lessons from the Past Two Decades," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 636-653, September.
    2. Prakash Kumar Shrestha, Ph.D., 2016. "Macroeconomic Impact of International Reserves: Empirical Evidence from South Asia," NRB Working Paper 32/2016, Nepal Rastra Bank, Research Department.
    3. Jeanne, Olivier & Sandri, Damiano, 2020. "Optimal reserves in financially closed economies," Journal of International Money and Finance, Elsevier, vol. 104(C).
    4. Joseph Joyce & Raul Razo-Garcia, 2011. "Reserves, quotas and the demand for international liquidity," The Review of International Organizations, Springer, vol. 6(3), pages 393-413, September.
    5. Prakash Kumar Shrestha, Ph.D., 2016. "Macroeconomic Impact of International Reserves: Empirical Evidence from South Asia," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 28(1), pages 1-26, April.
    6. Dominguez, Kathryn M.E. & Hashimoto, Yuko & Ito, Takatoshi, 2012. "International reserves and the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 388-406.
    7. Steiner, Andreas, 2013. "The accumulation of foreign exchange by central banks: Fear of capital mobility?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 409-427.
    8. Aizenman, Joshua & Sun, Yi, 2012. "The financial crisis and sizable international reserves depletion: From ‘fear of floating’ to the ‘fear of losing international reserves’?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 250-269.
    9. Dominguez, Kathryn M.E., 2012. "Foreign reserve management during the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2017-2037.
    10. Cheung, Yin-Wong & Sengupta, Rajeswari, 2011. "Accumulation of reserves and keeping up with the Joneses: The case of LATAM economies," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 19-31, January.
    11. Dongwon Lee, 2023. "International cooperation in foreign reserve policies in the presence of competitive hoarding," Review of International Economics, Wiley Blackwell, vol. 31(2), pages 389-412, May.
    12. Jean-Pierre Allegret & Audrey Allegret, 2018. "The role of international reserves holding in buffering external shocks," Applied Economics, Taylor & Francis Journals, vol. 50(29), pages 3128-3147, June.
    13. Petar Vujanovic, 2011. "Understanding the Recent Surge in the Accumulation of International Reserves," OECD Economics Department Working Papers 866, OECD Publishing.
    14. Eswar S. Prasad, 2011. "Role reversal in global finance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 339-390.
    15. Jäger, Kai, 2016. "The Role of Regime Type in the Political Economy of Foreign Reserve Accumulation," European Journal of Political Economy, Elsevier, vol. 44(C), pages 79-96.
    16. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2009. "Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008," American Economic Review, American Economic Association, vol. 99(2), pages 480-486, May.
    17. Ghosh, Atish R. & Ostry, Jonathan D. & Tsangarides, Charalambos G., 2014. "Accounting for emerging market countries' international reserves: Are Pacific Rim countries different?," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 52-82.
    18. Joshua Aizenman, 2011. "Trilemma and Financial Stability Configurations in Asia," Finance Working Papers 23219, East Asian Bureau of Economic Research.
    19. Aizenman, Joshua & Cheung, Yin-Wong & Qian, XingWang, 2020. "The currency composition of international reserves, demand for international reserves, and global safe assets," Journal of International Money and Finance, Elsevier, vol. 102(C).
    20. Joshua Aizenman, 2010. "Macro Prudential Supervision in the Open Economy, and the Role of Central Banks in Emerging Markets," Open Economies Review, Springer, vol. 21(3), pages 465-482, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oaefxx:v:4:y:2016:i:1:p:1147119. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/OAEF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.