32 Pages Posted: 14 Jan 2016 Last revised: 9 Apr 2017
Date Written: October 27, 2016
Managed exchange rates and capital controls impact international trade and finance flows, yet data used to detect these manipulations are of low frequency, expensive, lagged, and potentially mismeasured. The high frequency, free-of-charge, real time, observed prices of Bitcoin offer a solution to this problem. I demonstrate that the internationally traded crypto-currency can estimate unofficial exchange rates, detect exchange rate regimes; and detect capital controls at a daily frequency. However, Bitcoin prices may contain bitcoin-specific dynamics that must be removed prior to being used for this purpose, and Bitcoin-based exchange rates approximate the dynamics, but not the level, of unofficial exchange rates.
Keywords: Black Market, Unofficial, Exchange Rate, Bitcoin, Financial Integration, Capital Barriers
JEL Classification: F31, F33, G15, O17
Suggested Citation: Suggested Citation
Pieters, Gina C., Bitcoin Reveals Unofficial Exchange Rates and Detects Capital Controls (October 27, 2016). Available at SSRN: https://ssrn.com/abstract=2714921 or http://dx.doi.org/10.2139/ssrn.2714921