The Political Economy of Bitcoin
15 Pages Posted: 26 Feb 2016
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The Political Economy of Bitcoin
Date Written: April 2016
Abstract
The recent proliferation of bitcoin has been a boon for users but might pose problems for governments. Indeed, some governments have already taken steps to ban or discourage the use of bitcoin. In a model with endogenous matching and random consumption preferences, we find multiple monetary equilibria including one in which bitcoin coexists with official currency. We then identify the conditions under which government transactions policy might deter the use of bitcoin. We show that such a policy becomes more difficult if some users strictly prefer bitcoin because they can avoid other users holding the official currency in the matching process.
JEL Classification: C78, E41, E42, E50
Suggested Citation: Suggested Citation
American Institute for Economic Research
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American Institute for Economic Research ( email )
PO Box 1000
Great Barrington, MA 01230
United States
HOME PAGE: http://www.aier.org/staff/william-j-luther
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The Political Economy of Bitcoin
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