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Bitcoin Reveals Exchange Rate Manipulation and Detects Capital Controls

40 Pages Posted: 14 Jan 2016 Last revised: 5 Aug 2017

Gina C. Pieters

Trinity University - Department of Economics; University College London - Centre for Blockchain Technologies

Multiple version iconThere are 2 versions of this paper

Date Written: October 27, 2016

Abstract

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

Pieters, Gina C., Bitcoin Reveals Exchange Rate Manipulation 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 Pieters (Contact Author)

Trinity University - Department of Economics ( email )

San Antonio, TX 78212
United States

University College London - Centre for Blockchain Technologies ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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