Cryptocurrencies, Currency Competition and the Impossible Trinity

43 Pages Posted: 22 Jul 2019 Last revised: 14 Sep 2019

See all articles by Pierpaolo Benigno

Pierpaolo Benigno

LUISS Guido Carli University; Einaudi Institute for Economics and Finance (EIEF)

Linda Schilling

Ecole Polytechnique- CREST

Harald Uhlig

University of Chicago - Department of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: August 19, 2019

Abstract

We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable.

Keywords: currency competition, cryptocurrency, impossible trinity, exchange rates, uncovered interest parity, independent monetary policy

JEL Classification: E4, F31, D53, G12

Suggested Citation

Benigno, Pierpaolo and Schilling, Linda and Uhlig, Harald, Cryptocurrencies, Currency Competition and the Impossible Trinity (August 19, 2019). Available at SSRN: https://ssrn.com/abstract=3423326 or http://dx.doi.org/10.2139/ssrn.3423326

Pierpaolo Benigno (Contact Author)

LUISS Guido Carli University

Viale Romania 32
Rome, Roma 00197
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Linda Schilling

Ecole Polytechnique- CREST ( email )

5 Avenue Henry Le Chatelier
Palaiseau, 91120
France

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
445
Abstract Views
2,090
rank
55,796
PlumX Metrics