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On the Value of Virtual Currencies

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  • WILKO BOLT
  • MAARTEN R.C. VAN OORDT

Abstract

Our economic framework suggests that the exchange rate of virtual currency is determined by three components. First, the current value of transactions in virtual currency which absorb part of the exchange rate risk. Second, the decisions and expectations of forward‐looking investors to buy virtual currency (thereby effectively regulating its supply). 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.

Suggested Citation

  • Wilko Bolt & Maarten R.C. Van Oordt, 2020. "On the Value of Virtual Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 835-862, June.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:4:p:835-862
    DOI: 10.1111/jmcb.12619
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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G1 - Financial Economics - - General Financial Markets

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