Showing papers on "Currency published in 2014"
TL;DR: The Bitcoin price of consumer goods requires many decimal places with leading zeros, which is disconcerting to retail market participants as mentioned in this paper, and Bitcoin appears to behave more like a speculative investment than a currency.
Abstract: A bona fide currency functions as a medium of exchange, a store of value, and a unit of account, but bitcoin largely fails to satisfy these criteria. Bitcoin has achieved only scant consumer transaction volume, with an average well below one daily transaction for the few merchants who accept it. Its volatility is greatly higher than the volatilities of widely used currencies, imposing large short-term risk upon users. Bitcoin’s daily exchange rates exhibit virtually zero correlation with widely used currencies and with gold, making bitcoin useless for risk management and exceedingly difficult for its owners to hedge. Bitcoin prices of consumer goods require many decimal places with leading zeros, which is disconcerting to retail market participants. Bitcoin faces daily hacking and theft risks, lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. Bitcoin appears to behave more like a speculative investment than a currency.
657 citations
Book•
27 Dec 2014
TL;DR: This book describes the technical foundations of bitcoin and other cryptographic currencies, from cryptography basics, such as keys and addresses, to the data structures, network protocols and the consensus mechanism ("mining") that underpin bitcoin.
Abstract: Mastering Bitcoin is essential reading for everyone interested in learning about bitcoin basics, the technical operation of bitcoin, or if you're building the next great bitcoin killer app or business. From using a bitcoin wallet to buy a cup of coffee, to running a bitcoin marketplace with hundreds of thousands of transactions, or collaboratively building new financial innovations that will transform our understanding of currency and credit, this book will help you engineer money. You're about to unlock the API to a new economy. This book is your key. This book will help you learn everything you need to know about decentralized digital money, which is one of the most exciting technical revolutions in decades. Just as the Internet has transformed dozens of industries - from media and entertainment to retailing, travel and many more - decentralized digital money, in the form of crypto-currencies, has the ability to transform the foundations of money, credit and financial services. It also has the power to transform other social activities and institutions that we don't usually associate directly with money, such as corporations, governance, voting and the law. As the first successful digital currency, bitcoin is the natural starting point for anyone interested in decentralized digital money, its implications and applications. Mastering Bitcoin describes the technical foundations of bitcoin and other cryptographic currencies, from cryptography basics, such as keys and addresses, to the data structures, network protocols and the consensus mechanism ("mining") that underpin bitcoin. Each technical topic is explained with user stories, elegant analogies and examples, and code snippets illustrating the key concepts. The first two chapters offer a broad and accessible introduction to bitcoin that is intended for all audiences, from new non-technical users to investors and business executives seeking to better understand bitcoin. The remainder of the book dives into the technical details of bitcoin's operation and is aimed at professional developers, engineers, software and systems architects, systems administrators and technically-minded people interested in the inner workings of bitcoin and comparable crypto-currencies. Mastering Bitcoin is intended to be used as a reference book for technical professionals, as a self-study guide for bitcoin entrepreneurs, and as a textbook for university courses on bitcoin and digital currencies. Bitcoin is still in its infancy, and yet it has already spawned a multi-billion dollar, global economy that is growing exponentially. Both new and established companies are adding bitcoin as a payment method, and investors are funding a flurry of new bitcoin and related startups. Mastering Bitcoin can help you become part of this vibrant new economy. The time to get started is now.
509 citations
TL;DR: In this paper, the use of peer-to-peer networks and open-source software to stop double spending and create finality of transactions is discussed, and the rise of 24/7 trading on computerized markets in Bitcoin in which there are no brokers or other agents is discussed.
Abstract: Recent innovations have made it feasible to transfer private digital currency without the intervention of an institution. A digital currency must prevent users from spending their balances more than once, which is easier said than done with purely digital currencies. Current digital currencies such as Bitcoin use peer-to-peer networks and open-source software to stop double spending and create finality of transactions. This paper explains how the use of these technologies and limitation of the quantity produced can create an equilibrium in which a digital currency has a positive value. This paper also summarizes the rise of 24/7 trading on computerized markets in Bitcoin in which there are no brokers or other agents, a remarkable innovation in financial markets. I conclude that exchanges of foreign currency may be the obvious way in which use of digital currencies can become widespread and that Bitcoin is likely to limit governments’ revenue from inflation.
482 citations
03 Mar 2014
TL;DR: This work developed heuristics for identifying ownership relationships between Bitcoin addresses and IP addresses and demonstrates how nearly 1,000 Bitcoin addresses can be mapped to their likely owner IPs by leveraging anomalous relaying behavior.
Abstract: Over the last 4 years, Bitcoin, a decentralized P2P crypto-currency, has gained widespread attention The ability to create pseudo-anonymous financial transactions using bitcoins has made the currency attractive to users who value their privacy Although previous work has analyzed the degree of anonymity Bitcoin offers using clustering and flow analysis, none have demonstrated the ability to map Bitcoin addresses directly to IP data We propose a novel approach to creating and evaluating such mappings solely using real-time transaction traffic collected over 5 months We developed heuristics for identifying ownership relationships between Bitcoin addresses and IP addresses We discuss the circumstances under which these relationships become apparent and demonstrate how nearly 1,000 Bitcoin addresses can be mapped to their likely owner IPs by leveraging anomalous relaying behavior
385 citations
Posted Content•
TL;DR: Empirical insights are given on whether users’ interest regarding digital currencies is driven by its appeal as an asset or as a currency, finding strong indications that especially uninformed users approaching digital currencies are not primarily interested in an alternative transaction system but seek to participate in anAlternative investment vehicle.
Abstract: Digital currencies are a globally spreading phenomenon that is frequently and also prominently addressed by media, venture capitalists, financial and governmental institutions alike. As exchange prices for Bitcoin have reached multiple peaks within 2013, we pose a prevailing and yet academically unaddressed question: What are users' intentions when changing their domestic into a digital currency? In particular, this paper aims at giving empirical insights on whether users’ interest regarding digital currencies is driven by its appeal as an asset or as a currency. Based on our evaluation, we find strong indications that especially uninformed users approaching digital currencies are not primarily interested in an alternative transaction system but seek to participate in an alternative investment vehicle.
380 citations
Posted Content•
TL;DR: A look at the stochastic processes underlying typical attacks and their resulting probabilities of success in Bitcoin.
Abstract: Bitcoin is the world's first decentralized digital currency Its main technical innovation is the use of a blockchain and hash-based proof of work to synchronize transactions and prevent double-spending the currency While the qualitative nature of this system is well understood, there is widespread confusion about its quantitative aspects and how they relate to attack vectors and their countermeasures In this paper we take a look at the stochastic processes underlying typical attacks and their resulting probabilities of success
367 citations
03 Mar 2014
TL;DR: It is demonstrated that incentives of mixes and clients can be aligned to ensure that rational mixes will not steal, and the scheme offers similar anonymity to traditional communication mixes against active attackers.
Abstract: We propose Mixcoin, a protocol to facilitate anonymous payments in Bitcoin and similar cryptocurrencies. We build on the emergent phenomenon of currency mixes, adding an accountability mechanism to expose theft. We demonstrate that incentives of mixes and clients can be aligned to ensure that rational mixes will not steal. Our scheme is efficient and fully compatible with Bitcoin. Against a passive attacker, our scheme provides an anonymity set of all other users mixing coins contemporaneously. This is an interesting new property with no clear analog in better-studied communication mixes. Against active attackers our scheme offers similar anonymity to traditional communication mixes.
328 citations
17 Jun 2014
TL;DR: A limited set of entities controls Bitcoin's services, decision-making, mining, and incident resolution processes, bypassing the will of the multitude of users that populate the network.
Abstract: Bitcoin has achieved popularity by promising users a fully decentralized, low-cost virtual currency system. However, a limited set of entities controls Bitcoin's services, decision-making, mining, and incident resolution processes. These entities can decide Bitcoin's fate, bypassing the will of the multitude of users that populate the network.
270 citations
Book•
28 Sep 2014
TL;DR: The Social Life of Money as mentioned in this paper is a sociological study of money in a postcrisis world, where new kinds of money are proliferating, from local currencies and social lending to mobile money and Bitcoin.
Abstract: Questions about the nature of money have gained a new urgency in the aftermath of the global financial crisis. Even as many people have less of it, there are more forms and systems of money, from local currencies and social lending to mobile money and Bitcoin. Yet our understanding of what money is—and what it might be—hasn't kept pace. In The Social Life of Money, Nigel Dodd, one of today’s leading sociologists of money, reformulates the theory of the subject for a postcrisis world in which new kinds of money are proliferating. What counts as legitimate action by central banks that issue currency and set policy? What underpins the right of nongovernmental actors to create new currencies? And how might new forms of money surpass or subvert government-sanctioned currencies? To answer such questions, The Social Life of Money takes a fresh and wide-ranging look at modern theories of money. One of the book’s central concerns is how money can be wrested from the domination and mismanagement of banks and governments and restored to its fundamental position as the "claim upon society" described by Georg Simmel. But rather than advancing yet another critique of the state-based monetary system, The Social Life of Money draws out the utopian aspects of money and the ways in which its transformation could in turn transform society, politics, and economics. The book also identifies the contributions of thinkers who have not previously been thought of as monetary theorists—including Nietzsche, Benjamin, Bataille, Deleuze and Guattari, Baudrillard, Derrida, and Hardt and Negri. The result provides new ways of thinking about money that seek not only to understand it but to change it.
261 citations
TL;DR: The DR-CAPM model as mentioned in this paper can jointly rationalize the cross section of equity, equity index options, commodity, sovereign bond and currency returns, thus offering a unified risk view of these asset classes.
226 citations
28 May 2014
TL;DR: In this paper, a new decentralized digital currency, called NRGcoin, is introduced for the smart grid, where prosumers trade locally produced renewable energy using NRGcoins, the value of which is determined on an open currency exchange market.
Abstract: In this paper we introduce a new decentralized digital currency, called NRGcoin. Prosumers in the smart grid trade locally produced renewable energy using NRGcoins, the value of which is determined on an open currency exchange market. Similar to Bitcoins, this currency offers numerous advantages over fiat currency, but unlike Bitcoins it is generated by injecting energy into the grid, rather than spending energy on computational power. In addition, we propose a novel trading paradigm for buying and selling green energy in the smart grid. Our mechanism achieves demand response by providing incentives to prosumers to balance their production and consumption out of their own self-interest. We study the advantages of our proposed currency over traditional money and environmental instruments, and explore its benefits for all parties in the smart grid.
TL;DR: This paper investigated the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies and found that these effects depend on country-specific characteristics.
TL;DR: In this paper, the authors describe a currency investment strategy, the "dollar carry trade", which delivers large excess returns, uncorrelated with the returns on well-known carry trade strategies.
TL;DR: In this article, a new quarterly dataset covering crisis episodes in 40 developed countries over 1970-2010 was constructed, and stylized facts on banking, debt, and currency crises were presented.
TL;DR: The authors assesses whether the international monetary system is already tri-polar by testing what they call China's "dominance hypothesis" and find evidence that the renminbi has become a key driver of currency movements in Asia since the mid-2000s, especially since the global financial crisis, in line with China's dominance hypothesis.
Abstract: This study assesses whether the international monetary system is already tri-polar by testing what we call China's ‘dominance hypothesis’, i.e. whether the renminbi already influences exchange rate and monetary policies strongly in Asia, a direct reference to the old ‘German dominance hypothesis’ which ascribed to the German mark a dominant role in Europe in the 1980s. Using a global factor model of exchange rates and a complementary event study, we find evidence that the renminbi has become a key driver of currency movements in Asia since the mid-2000s, especially since the global financial crisis, in line with China's dominance hypothesis.
Patent•
04 Oct 2014
TL;DR: In this article, the authors present a system, devices and methods for conducting financial transactions, digital asset exchanges, and multi-currency interoperability on a private network of member subscribers in communication with other commercial banking and finance networks and services, where the system includes a specially adapted currency storage and conversion card apparatus.
Abstract: The present invention relates to systems, devices, and methods for conducting financial transactions, digital asset exchanges, and multi-currency interoperability on a private network of member subscribers in communication with other commercial banking and finance networks and services, where the system includes a specially adapted currency storage and conversion card apparatus, the card further comprising means for executing said transactions and exchanges using one or two or more currencies, where at least one of said currencies in preferred embodiments is a virtual digital currency hosted on said private network and combining features of both decentralized and centrally-regulated cryptocurrency systems; as well as a host of hardware and software means for integrating all of the above advantageously in various contingencies and circumstances
TL;DR: In this paper, the authors compute returns to crash-hedged portfolios and demonstrate that the high returns to carry trades are not due to peso problems, but due to violations of uncovered interest rate parity in G10 currencies.
TL;DR: This article investigated the impact of macro news on currency jumps and cojumps and found that news can explain 22-56% of the 5-min jump returns, and there is evidence that better-than-expected news about the U.S. economy has a negative impact on currency jump.
Posted Content•
TL;DR: The global long-term interest rate now matters much more for the monetary policy choices facing emerging market economies than a decade ago as mentioned in this paper, and the low or negative term premium in the yield curve in the advanced economies from mid-2010 has pushed international investors into EM local bond markets.
Abstract: The global long-term interest rate now matters much more for the monetary policy choices facing emerging market economies than a decade ago. The low or negative term premium in the yield curve in the advanced economies from mid-2010 has pushed international investors into EM local bond markets: by lowering local long rates, this has considerably eased monetary conditions in the emerging markets. It has also encouraged much increased foreign currency borrowing in international bond markets by emerging market corporations, much of it by affiliates offshore. These developments strengthen the feedback effects between bond and foreign exchange markets. They also have significant implications for local banking systems.
TL;DR: Considering all three prediction model results, Turkey's economy is not expected to have a currency crisis until the end of 2012, and the decision support model developed in this study uses basic macroeconomic indicators to predict crises up to a year before they actually happened with an accuracy rate of approximately 95%.
TL;DR: In this article, the authors investigated the impact of general economic and economic policy uncertainty on exchange rate volatility for ten industrial and emerging economies since 1990 and found that both home-country and US economic policy uncertainties directly increase exchange rate variance for some of the currencies examined.
Abstract: This paper investigates the impact of general economic and economic policy uncertainty on exchange rate volatility for ten industrial and emerging economies since 1990. The results in this paper suggest that home and US economic policy uncertainty directly increase exchange rate volatility for some of the currencies examined. For the more integrated industrial economies, there is strong evidence that both home-country and US economic policy uncertainty increase currency volatility during bad economic times. For the less integrated emerging economies, only home-country economic policy uncertainty increases exchange rate volatility during bad economic times. General economic uncertainty also increases exchange rate volatility, but its impact is generally smaller than that of economic policy uncertainty. Given that previous research has found a negative relationship between exchange rate volatility and economic activity, these results suggest that economic policy uncertainty can negatively affect economic performance.
TL;DR: This article analyzed the impact of exchange rate flexibility on credit markets during periods of large capital inflows and found that bank credit grows more rapidly and its composition tilts to foreign currency in economies with less flexible exchange rate regimes.
Abstract: The prospects of expansionary monetary policies in the advanced countries for the foreseeable future have renewed the debate over policy options to cope with large capital inflows that are, at least partly, driven by low interest rates in the financial centers. Historically, capital flow bonanzas have often fueled sharp credit expansions in advanced and emerging market economies alike. Focusing primarily on emerging markets, we analyze the impact of exchange rate flexibility on credit markets during periods of large capital inflows. We show that bank credit grows more rapidly and its composition tilts to foreign currency in economies with less flexible exchange rate regimes, and that these results are not explained entirely by the fact that the latter attract more capital inflows than economies with more flexible regimes. Our findings thus suggest countries with less flexible exchange rate regimes may stand to benefit the most from regulatory policies that reduce banks' incentives to tap external markets and to lend/borrow in foreign currency; these policies include marginal reserve requirements on foreign lending, currency-dependent liquidity requirements, and higher capital requirement and/or dynamic provisioning on foreign exchange loans.
TL;DR: This work studies the problem of suppliers’ selection in the presence of uncertain fluctuations of currency exchange rates and price discounts and addresses both the supplier selection and purchased quantity decision of a buyer with multiple sites.
TL;DR: In this paper, the authors investigated intra-safe haven currency behavior during the recent global financial crisis and found that the JPY is the "safe" of safe haven currencies and that only JPY appreciates as market uncertainty increases regardless of the prevailing level of uncertainty.
02 Oct 2014
TL;DR: In this article, the authors examine their experiences and policy responses and draw broad policy lessons for emerging markets, including good macroeconomic fundamentals, early and decisive measures to strengthen macroeconomic policies and reduce vulnerabilities help dampen market reactions to external shocks.
Abstract: Accommodative monetary policies in advanced economies have spurred increased capital inflows into emerging markets since the global financial crisis. Starting in May 2013, when the Federal Reserve publicly discussed its plans for tapering unconventional monetary policies, these emerging markets have experienced financial turbulence at the same that their domestic economic activity has slowed. This paper examines their experiences and policy responses and draws broad policy lessons. For emerging markets, good macroeconomic fundamentals matter, and early and decisive measures to strengthen macroeconomic policies and reduce vulnerabilities help dampen market reactions to external shocks. For advanced economies, clear and effective communication about the exit from unconventional monetary policy can and did help later to reduce the risk of excessive market volatility. And for the global community, enhanced global cooperation, including a strong global financial safety net, offers emerging markets effective protection against excessive volatility.
Book•
26 Jan 2014
TL;DR: In this article, the authors set the stage for the currency war in the 1970s and 1980s and described the following building blocks: Prologue 3, Prologue 4, Building Blocks 5, Paradox of Uphill Capital Flows 6, The Quest for Safety 63, The Siren Song of Capital Controls 7, Currency Wars 125 8. Seeking a Truce on Currency Wars 158 9. It Takes Twenty to Tango 171 10. Safety Nets with Gaping Holes
Abstract: List of Figures and Tables ix Preface to the Paperback Edition xi Preface xvii PART ONE Setting the Stage 1. Prologue 3 2. What Is So Special about the Dollar? 11 PART TWO Building Blocks 3. The Paradox of Uphill Capital Flows 31 4. Emerging Markets Get Religion 47 5. The Quest for Safety 63 6. A Trillion Dollar Con Game? 89 PART THREE Inadequate Institutions 7. Currency Wars 125 8. Seeking a Truce on Currency Wars 158 9. It Takes Twenty to Tango 171 10. The Siren Song of Capital Controls 188 11. Safety Nets with Gaping Holes 201 PART FOUR Currency Competition 12. Is the Renminbi Ready for Prime Time? 229 13. Other Contenders Nipping at the Dollar's Heels 262 14. Could the Dollar Hit a Tipping Point and Sink? 283 15. Ultimate Paradox: Fragility Breeds Stability 299 Appendix 309 Notes 317 References 375 Acknowledgments 393 Index 395
Posted Content•
TL;DR: In this article, the authors highlight how the digital currency Bitcoin can meet the challenges of the economic environment, taking into account both the opportunities and the threats to which it is subject, and the records emphasized by the history of economic thought and adapted to the current reality.
Abstract: The complexity and interdependence of the economies of various geographical and political entities have one generic binder - money. The economic history of the last century, replicated in the first decade of our century, can be "written" with money. Indeed, money, a multiple discovery of the civilization in its historical way, was and still is the guardian of hope for prosperity. The disputes about money clearly indicate the need, opportunity and the possibility of monetary competition, which would provide, from the point of view of entrepreneurs, the most suitable production of money based on expectations of their economic preferences. Increasingly more, theorists, practitioners and analysts bring to the fore the issue of simultaneously using the official currency and the digital one. Thus, the issue of the public debate regarding the private money is still of interest. Based on these considerations, this paper aims to highlight how the digital currency Bitcoin can meet the challenges of the economic environment, taking into account both the opportunities and the threats to which it is subject, and the records emphasized by the history of economic thought and adapted to the current reality.
TL;DR: In this article, a reinterpretation of the traditional Currency Demand Approach (CDA) a la Tanzi is proposed to assess the size of the underground (or shadow) economy by taking a direct measure of the value of cash transactions.
Abstract: We contribute to the debate on how to assess the size of the underground (or shadow) economy by proposing a reinterpretation of the traditional Currency Demand Approach (CDA) a la Tanzi. In particular, we introduce three main innovations. First, we take a direct measure of the value of cash transactions - the flow of cash withdrawn from bank accounts relative to total non‐cash payments - as the dependent variable in the money demand equation. This allows us to avoid unrealistic assumptions on the velocity of money and the absence of any irregular transaction in a given year, overcoming two severe critiques to the traditional CDA. Second, in place of the tax burden level, usually intended as the main motivation for non‐compliance, we include among the covariates two direct indicators of detected tax evasion. Finally, we control also for the role of illegal production considering crimes like drug dealing and prostitution, which - jointly with the shadow economy - contributes to the larger aggregate of the non‐observed economy and represents a significant component of total cash payments. We propose then an application of this “modified CDA” to a panel of 91 Italian provinces for the years 2005–08.
TL;DR: In this article, the authors present evidence of the renminbi's growing influence in the Asia-Pacific region and suggest that China's regional influence is increasingly transmitted through financial channels, even after controlling for other major currency moves and the transmission of China's monetary policy to the region.
Abstract: This study presents evidence of the renminbi’s growing influence in the Asia-Pacific region The CNH market – the offshore renminbi foreign exchange market in Hong Kong SAR – is found to exert an effect on Asian currencies that is distinct from that of the onshore (CNY) market Changes in the RMB/USD rates in both markets have a statistically and economically significant impact on changes in Asian currency rates against the US dollar, even after controlling for other major currency moves and the transmission of China’s monetary policy to the region The continuing growth of the offshore renminbi market suggests that the influence of the CNH market is rising, but how long the independent impact will last will likely depend on China’s progress in liberalising its capital account The findings also suggest that China’s regional influence is increasingly transmitted through financial channels
TL;DR: In this paper, alternative rationales for allocating funds, based on equity and efficiency concerns at both international and subnational levels, are tested against the criteria and priorities of the Fund and decisions made on project approval.