How Do Private Digital Currencies Affect Government Policy?

We provide a systematic classification and evaluation of the different types of digital currencies. We express skepticism regarding centralized digital currencies and focus our economic analysis on private digital currencies. We specifically highlight the potential for private digital currencies to improve welfare within an emerging market with a selfish government. In that setting, we demonstrate that a private digital currency not only improves citizen welfare but also encourages local investment and enhances government welfare. The fact that a private digital currency enhances government welfare implies a permissive regulatory policy which enables citizens to realize the previously referenced welfare gains.

Keywords: Cryptocurrency, Digital Currency, Bitcoin, Blockchain

JEL Classification: E42, F30, G18, O38

Suggested Citation: Suggested Citation

Raskin, Max and Saleh, Fahad and Yermack, David, How Do Private Digital Currencies Affect Government Policy? (October 27, 2022). NYU Stern School of Business, NYU Law and Economics Research Paper No. 20-05, Journal of Financial Stability, Vol. 73 (August 2024), Available at SSRN: https://ssrn.com/abstract=3437529 or http://dx.doi.org/10.2139/ssrn.3437529