A monetary model of cryptocurrency with Peter Zimmerman
I present a model in which agents choose between fiat money and cryptocurrency as a means of payment. I analyse the relationship between the use of cryptocurrency for payments and for speculation, and the effect on prices.
Hovedinnhold
Welcome to seminar with Peter Zimmerman
Title: A monetary model of cryptocurrency
Abstract:
I present a model in which agents choose between fiat money and cryptocurrency as a means of payment. I analyse the relationship between the use of cryptocurrency for payments and for speculation, and the effect on prices. Cryptocurrency has the advantage that it can be used in transactions when fiat money is not permitted. But limited blockchain capacity means cryptocurrency transactions are subject to potential settlement delay. The greater the delay, the less useful cryptocurrency is as a means of payment, so returns on cryptocurrency must rise to compensate holders for the lower liquidity premium. Similarly, speculative activity crowds the blockchain and causes settlement delay, so that even uninformed speculation can raise cryptocurrency returns. This means that, for cryptocurrencies, speculation affects returns in a novel way not seen with other asset classes.
