CAN WE STABILIZE THE PRICE OF A CRYPTOCURRENCY?: UNDERSTANDING THE DESIGN OF BITCOIN AND ITS POTENTIAL TO COMPETE WITH CENTRAL BANK MONEY

Although Bitcoin was designed as a payment vehicle and as a store of value, it seems unlikely that currencies provided by central banks are at risk of being replaced, primarily because of the market price instability of Bitcoin. We diagnose the instability as being a symptom of the lack of flexibili...

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Bibliographic Details
Published in:Hitotsubashi journal of economics 2019-06, Vol.60 (1), p.41-60
Main Authors: Iwamura, Mitsuru, Kitamura, Yukinobu, Matsumoto, Tsutomu, Saito, Kenji
Format: Article
Language:English
Subjects:
Banking
Blockchain
Central banks
Competition
Deposit accounts
Digital currencies
Digital signatures
Economic theory
Flexibility
Forgery
Monetary policy
Money
Payment systems
Prices
Stability
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Summary:Although Bitcoin was designed as a payment vehicle and as a store of value, it seems unlikely that currencies provided by central banks are at risk of being replaced, primarily because of the market price instability of Bitcoin. We diagnose the instability as being a symptom of the lack of flexibility in the Bitcoin supply schedule - a predetermined algorithm in which the proof of work is the major driving force. This paper explores the problem of instability from the viewpoint of economics, and suggests a new monetary policy for stabilizing the values of Bitcoin and other cryptocurrencies.
ISSN:0018-280X
2436-097X
DOI:10.15057/30361