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Cryptocurrencies: Review of Economics and Policy

Author

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  • Sonan Memon

    (Pakistan Institute of Development Economics)

Abstract

In this review paper, I begin by discussing crypto’s market penetration, legal status, and economic opportunities for Pakistan. I mainly focus on the economics of digital “currencies”. Key questions include how does crypto “currency” compare with traditional fiat currencies as a substitute? Which economic problems does it currently solve or have the potential to solve (e.g. lowers verification and networking costs)? What are its economic limitations (e.g. high energy costs, speculative bubbles, prohibitive costs of maintaining incentive compatibility and the blockchain trilemma)? How does the widespread adoption of digital currencies change the monetary and fiscal policy paradigm? Which set of regulations are needed from policymakers to address crypto’s adverse effects, such as accommodating illicit activities and threatening consumer protection? In the appendix, I also summarise the design features of the technology that underlies cryptocurrencies.

Suggested Citation

  • Sonan Memon, 2022. "Cryptocurrencies: Review of Economics and Policy," PIDE-Working Papers 2022:7, Pakistan Institute of Development Economics.
    • Handle: RePEc:pid:wpaper:2022:7
    as

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    References listed on IDEAS

    as
    1. Schilling, Linda & Uhlig, Harald, 2019. "Some simple bitcoin economics," Journal of Monetary Economics, Elsevier, vol. 106(C), pages 16-26.
    2. Joseph Abadi & Markus Brunnermeier, 2018. "Blockchain Economics," NBER Working Papers 25407, National Bureau of Economic Research, Inc.
    3. Choi, Sangyup & Shin, Junhyeok, 2022. "Bitcoin: An inflation hedge but not a safe haven," Finance Research Letters, Elsevier, vol. 46(PB).
    4. Blau, Benjamin M. & Griffith, Todd G. & Whitby, Ryan J., 2021. "Inflation and Bitcoin: A descriptive time-series analysis," Economics Letters, Elsevier, vol. 203(C).
    5. Jin, Xuejun & Zhu, Keer & Yang, Xiaolan & Wang, Shouyang, 2021. "Estimating the reaction of Bitcoin prices to the uncertainty of fiat currency," Research in International Business and Finance, Elsevier, vol. 58(C).
    6. Eric Budish, 2018. "The Economic Limits of Bitcoin and the Blockchain," NBER Working Papers 24717, National Bureau of Economic Research, Inc.
    7. Grégory Claeys & Maria Demertzis & Konstantinos Efstathiou, 2018. "Cryptocurrencies and monetary policy," Bruegel Policy Contributions 26557, Bruegel.
    8. Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, vol. 92(3), pages 460-501, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cryptocurrencies: Bitcoin; Ethereum; Tether etc; Blockchain Technology; Economics of Cryptocurrencies; Implications for Fiscal and Monetary Policy; Regulation of Crypto Market;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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