Does Bitcoin Reveal New Information About Exchange Rates and Financial Integration?

36 Pages Posted: 11 Jan 2017

See all articles by Gina C. Pieters

Gina C. Pieters

University of Chicago - Department of Economics; Cambridge Centre for Alternative Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2016-12-01

Abstract

I show that the prices of the internationally traded crypto-currency bitcoin can be used to estimate a currency’s unofficial exchange rate and capital controls at a daily interval. Two important bitcoin features are documented: (1) Bitcoin-based exchange rates approximate the behavior, but not the level, of unofficial exchange rates, and (2) Bitcoin prices contain a bitcoin-trend term and must be appropriately normalized prior to being used for this purpose. Bitcoin-based exchange rates reveal that (3) there is no consistent pattern of Granger causality between unofficial rates and official rates by exchange rate regime or barriers at the daily frequency, and (4) that countries can engage in short-interval capital controls.

JEL Classification: F31, F33, G15, O17

Suggested Citation

Pieters, Gina C., Does Bitcoin Reveal New Information About Exchange Rates and Financial Integration? (2016-12-01). Globalization and Monetary Policy Institute Working Paper No. 292. Available at SSRN: https://ssrn.com/abstract=2896642 or http://dx.doi.org/10.24149/gwp292

Gina C. Pieters (Contact Author)

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

HOME PAGE: http://https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/

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