Bitcoin Reveals Unofficial Exchange Rates and Detects Capital Controls

32 Pages Posted: 14 Jan 2016 Last revised: 9 Apr 2017

Gina C. Pieters

Trinity University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 27, 2016

Abstract

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

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

Gina C. Pieters (Contact Author)

Trinity University - Department of Economics ( email )

San Antonio, TX 78212
United States

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