Money, Bitcoin, and Monetary Policy

45 Pages Posted: 9 Jan 2019 Last revised: 28 Mar 2022

See all articles by Kee-Youn Kang

Kee-Youn Kang

University of Liverpool Management School

Seungduck Lee

Sungkyunkwan University

Date Written: March 23, 2019

Abstract

A search theoretic model is constructed, where money and Bitcoin can be used as mediums of exchange. We investigate how each currency facilitates transactions and how they compete with each other. Quantitative analysis shows that welfare in an economy with both money and Bitcoin is lower than in a money-only economy due to congestions in the confirmation of Bitcoin transactions and that the welfare gap between the two economies expands as inflation rises. Moreover, an increase in transaction fees for Bitcoin can increase welfare by reducing inefficient Bitcoin transactions.

Keywords: Money, Cryptocurrency, Bitcoin, Digital Currency, Blockchain, Monetary Policy, Medium of Exchange

JEL Classification: E31, E50, E52, G12

Suggested Citation

Kang, Kee-Youn and Lee, Seungduck, Money, Bitcoin, and Monetary Policy (March 23, 2019). Available at SSRN: https://ssrn.com/abstract=3303595 or http://dx.doi.org/10.2139/ssrn.3303595

Kee-Youn Kang (Contact Author)

University of Liverpool Management School ( email )

Seungduck Lee

Sungkyunkwan University ( email )

110-745 Seoul
Korea

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