38 Pages Posted: 14 Jan 2016 Last revised: 22 Jul 2017
Date Written: October 27, 2016
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 mis-measured. I demonstrate that the price data of the internationally traded cryptocurrency Bitcoin can approximate unofficial 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-specific 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 verification that Bitcoin is used to circumvent capital controls and manipulated 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