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Hayek Money: The Cryptocurrency Price Stability Solution

51 Pages Posted: 17 Apr 2014 Last revised: 23 Aug 2016

Ferdinando M. Ametrano

Milan Bicocca University - Department of Statistics and Quantitative Methods; QuantLib; Intesa Sanpaolo Bank; Banca IMI - Intesa Sanpaolo Group

Date Written: August 13, 2016

Abstract

Bitcoin has enabled competition between digital cryptocurrencies and traditional legal tender fiat currencies. Despite rapidly increasing acceptance, so far the affirmation of cryptocurrency as better money has been thwarted by dramatic deflationary price instability. Successful at disposing of any central monetary authority, bitcoin has elected to have a fixed deterministic inelastic monetary policy, establishing itself more as digital gold than as a currency. Price stability could be achieved by dynamically rebasing the outstanding amount of money: the number of cryptocurrency units in every digital wallet is adjusted instead of each single unit changing its value. The apparent awkwardness of this unfamiliar paradigm is discussed at length, proving that its only real novelty is about fairness and effectiveness. Furthermore, suggestions are provided about how to ease the effect of contractionary monetary policy. The proposed monetary base adjustment has neutral impact on the overall wallet wealth, as it does not introduce any arbitrary distortion into the intrinsic value dynamics of the wallet. The adjustment is based on a commodity price index determined with a resilient consensus process that does not rely on central third party authorities. It is posited in this paper that a digital cryptocurrency adopting elastic monetary standard is Hayek Money, so named from the Nobel Prize-winning economist: a good money standard providing stable prices for a new economic era.

Keywords: bitcoin, Hayek, cryptocurrency, inflation, deflation, monetary policy, Hayek money

JEL Classification: A10, B00, C70, E31, E41, E42, E51, E52, E58, F00, F31, F34, F41, H00, N00, O00, P00, Z00

Suggested Citation

Ametrano, Ferdinando M., Hayek Money: The Cryptocurrency Price Stability Solution (August 13, 2016). Available at SSRN: https://ssrn.com/abstract=2425270 or http://dx.doi.org/10.2139/ssrn.2425270

Ferdinando M. Ametrano (Contact Author)

Milan Bicocca University - Department of Statistics and Quantitative Methods ( email )

Milano, 20126
Italy

QuantLib ( email )

HOME PAGE: http://quantlib.org

Intesa Sanpaolo Bank ( email )

Italy

Banca IMI - Intesa Sanpaolo Group ( email )

Largo Mattioli 3
Milano, 20121
Italy

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