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Bitcoin Reveals Exchange Rate Manipulation and Detects Capital Controls

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  • Gina Christelle Pieters

Abstract

Many countries manipulate the value of their currency or use some form of capital control, yet the data usually used to detect these manipulations are low frequency, expensive, lagged, and potentially mismeasured. I demonstrate that the price data of the internationally traded cryptocurrency Bitcoin can approximate unocial exchange rates which, in turn, can be used to detect both the existence and the magnitude of the distortion caused by capital controls and exchange rate manipulations. However, I document that bitcoin exchange rates contain problematic bitcoin-market-speci c elements and must be adjusted before being used for this purpose. As bitcoin exchange rates exist at a daily frequency, they reveal transitory interventions that would otherwise go undetected. This result also serves as veri cation that Bitcoin is used to circumvent capital controls and manipulated exchange rates.

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  • Gina Christelle Pieters, 2017. "Bitcoin Reveals Exchange Rate Manipulation and Detects Capital Controls," 2017 Papers ppi307, Job Market Papers.
    • Handle: RePEc:jmp:jm2017:ppi307
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    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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