Showing papers on "Currency published in 2021"

Banking, Trade, and the making of a Dominant Currency

Abstract: We explore the interplay between trade-invoicing patterns and the pricing of safe assets in different currencies. Our theory highlights the following points: (i) a currency’s role as a unit of account for invoicing decisions is complementary to its role as a safe store of value; (ii) this complementarity can lead to the emergence of a single dominant currency in trade invoicing and global banking, even when multiple large candidate countries share similar economic fundamentals; (iii) firms in emerging-market countries endogenously take on currency mismatches by borrowing in the dominant currency; and (iv) the expected return on dominant-currency safe assets is lower than that on similarly safe assets denominated in other currencies, thereby bestowing an “exorbitant privilege” on the dominant currency. The theory thus provides a unified explanation for why a dominant currency is so heavily used in both trade invoicing and in global finance.

Does informal economy impede economic growth? Evidence from an emerging economy

Abstract: The objective of this study is to re-examine the impact of the informal economy on economic growth in Pakistan. This study first computed the informal economy through currency demand equation and t...

Development of Friedrich von Hayekʼs theory of private money and economic implications for digital currencies

Abstract: The purpose of the research is to analyze the formation and development of Von Hayekʼs theory of private money and its application in the conditions of the digitalization The theory of private money and the concept of political economy may become the fundamental basis for the circulation and pricing of central banks digital currencies (CBDC) in the near future In this case, central planning should solve the problem of distributing money among different segments of the population, in order to avoid a significant amount of private money in well-off segments of the population Hayekʼs concept supports the introduction of an unconditional basic income (Zwolinski, 2019), where fixed amounts of government payments are distributed to all citizens through a monetary system, which is relevant during the COVID-19 pandemic The article concludes that the international nature of digital currencies will make both developing and developed economies vulnerable to “digital dollarization”, when the national currency is replaced by the currency of the digital platform Digitalization of money increases the importance of competition between private and public money In the digital economy, cash can actually disappear, and payments can center around social and economic platforms, weakening traditional monetary policy channels Governments may to ask central banks to use CBDC in order to maintain monetary policy independence The article confirms that stable digital money is preferable for foresight, calculation and accounting Hayek supported the idea of the manipulating the amount of money to stabilize the purchasing power © А Ю Михайлов, 2021

Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens

Abstract: Global firms finance themselves through foreign subsidiaries, often shell companies in tax havens, which obscures their nationality in aggregate statistics. We associate the universe of traded securities with their issuer’s ultimate parent and restate bilateral investment positions to better reflect the true financial linkages connecting countries around the world. We find that portfolio investment from developed countries to firms in large emerging markets is dramatically larger than previously thought. The national accounts of the United States, for example, understate the U.S. position in Chinese firms by nearly 600 billion dollars, while China’s official net creditor position to the rest of the world is overstated by about 50 percent. We additionally show how taking account of offshore issuance is important for our understanding of the currency composition of external portfolio liabilities, the nature of foreign direct investment, and the growth of financial globalization.

Decentralizing Money: Bitcoin Prices and Blockchain Security

Abstract: We address the determination of bitcoin prices and decentralized security. Users forecast the transactional and resale value of holdings, pricing the risk of malicious systemic attacks. Miners contribute resources to protect against attackers, competing for block rewards. Bitcoin’s design leads to multiple equilibria: the same technology and fundamentals are consistent with sharply different price and security levels. Bitcoin’s monetary policy can lead to welfare losses and deviations from quantity theory. Price–security feedback amplifies fundamental shocks’ volatility impact and leads to boom–busts not driven by fundamentals. We show how Bitcoin’s viability versus fiat currency depends on relative acceptability and inflation protection.

Bitcoin Price Prediction and Analysis Using Deep Learning Models

Abstract: Cryptocurrencies are a digital way of money in which all transactions are held electronically. It is a soft currency which doesn’t exist in the form of hard notes physically. Here, we are emphasizing the difference of fiat currency which is decentralized that without any third-party intervention all virtual currency users can get the services. However, getting services of these cryptocurrencies impacts on international relations and trade, due to its high price volatility. There are several virtual currencies such as bitcoin, ripple, ethereum, ethereum classic, lite coin, etc. In our study, we especially focused on a popular cryptocurrency, i.e., bitcoin. From many types of virtual currencies, bitcoin has a great acceptance by different bodies such as investors, researchers, traders, and policy-makers. To the best of our knowledge, our target is to implement the efficient deep learning-based prediction models specifically long short-term memory (LSTM) and gated recurrent unit (GRU) to handle the price volatility of bitcoin and to obtain high accuracy. Our study involves comparing these two time series deep learning techniques and proved the efficacy in forecasting the price of bitcoin.

The volatility of Bitcoin and its role as a medium of exchange and a store of value.

Abstract: Bitcoin is designed as a peer-to-peer cash system. To work as a currency, it must be stable or be backed by a government. In this paper, we show that the volatility of Bitcoin prices is extreme and almost 10 times higher than the volatility of major exchange rates (US dollar against the euro and the yen). The excess volatility even adversely affects its potential role in portfolios. Our analysis implies that Bitcoin cannot function as a medium of exchange and has only limited use as a risk-diversifier. In contrast, we use the deflationary design of Bitcoin as a theoretical basis and demonstrate that Bitcoin displays store of value characteristics over long horizons.

An equilibrium model of the international price system

Abstract: What explains the central role of the dollar in world trade? Will the U.S. currency retain its dominant status in the future? This paper develops a quantitative general equilibrium framework with endogenous currency choice that can address these questions. Complementarities in price setting and input-output linkages across rms generate complementarities in currency choice making exporters coordinate on the same currency of invoicing. The dollar is more likely to play this role because of the large size of the U.S. economy, a widespread peg to the dollar, and the history dependence in currency choice. Calibrated using the world input-output tables and exchange rate moments, the model can successfully replicate the key empirical facts about the use of currencies at the global level, across countries, and over time. According to the counterfactual analysis, the peg to the dollar in other economies ensures that the U.S. currency is unlikely to lose its global status because of the falling U.S. share in the world economy, but can be replaced by the renminbi in case of a negative shock in the U.S. economy. If the peg is abandoned, the world is likely to move to a new equilibrium with multiple regional currencies.

Do FEARS drive Bitcoin

Abstract: This study examines the prediction power of investor sentiment on Bitcoin return.,We construct a Financial and Economic Attitudes Revealed by Search (FEARS) index using search volume from Google's search engine to reveal household-level (“bankruptcy”, “unemployment”, “job search”, etc.) and market-level sentiment (“bankruptcy”, “unemployment”, “job search”, etc.).,Using a variety of quantitative methodologies such as the transfer entropy model as well as threshold regression and OLS, GLS and 2SLS estimations, we find that (1) investor sentiment has strong predictive power on Bitcoin, (2) household-level sentiment has larger effects than market-level sentiment and (3) the impact of sentiment is greater in low sentiment regimes than in high sentiment regimes. Based on these information, we build a hypothetical trading strategy that outperforms a simple buy-and-hold strategy both on an absolute and risk-adjusted basis. The results are consistent across cryptocurrencies and regions.,The findings contribute to the ongoing debate in the literature on the efficiency of cryptocurrency markets. The results reveal that the Bitcoin market is not efficient in the sense of the efficient market hypothesis – asset prices do not fully reflect all available information and we were able to “beat the market”. In addition, it sheds further light on the debate whether Bitcoin can be considered a medium of exchange, i.e. a currency or an investment product. Because investors are reallocating their Bitcoin holdings during times of increased market sentiment due to liquidity needs, they obviously consider bitcoin an investment product rather than a currency.,This study is the first to examine the impact of investor sentiment measured by FEARS on Bitcoin return.

Dynamic spillovers and connectedness between COVID-19 pandemic and global foreign exchange markets

Abstract: This paper examines dynamic spillovers and connectedness between global covid-19 occurrences and the Global FX market. We specifically analyse the spillovers using six most traded currency pairs in...

Why Is the Euro Punching Below Its Weight

Abstract: On the twentieth anniversary of its inception, the euro has yet to expand its role as an international currency. We document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements—which we argue is a portmanteau measure—and as a currency for the denomination of trade and assets. On all these dimensions, the euro comprises a far smaller share than that of the US dollar. Furthermore, that share has been roughly constant since 1999. By some measures, the euro plays no larger a role than the Deutschemark and French franc that it replaced. We explore the reasons for this underperformance. While the leading anchor currency may have a natural monopoly, a number of additional factors have limited the euro’s reach, including lack of financial center, limited geopolitical reach, and US and Chinese dominance in technology research. Most important, in our view, is the comparatively scarce supply of (safe) euro-denominated assets, which we document. The European Central Bank’ lack of policy clarity may have also played a role. We show that the euro era can be divided into a “Bundesbank-plus” period and a “Whatever it Takes” period. The first shows a smooth transition from the European Exchange Rate Mechanism and continued to stabilize German inflation. The second period is characterised by an expanding ECB arsenal of credit facilities to European banks and sovereigns.

The Re‐making of the Turkish Crisis

Abstract: By the end of 2018 Turkey had entered a new economic crisis and a lengthy recession period In contrast to the previous financial crises of 1994, 2001 and 2009, when the economy shrank abruptly with a spectacular collapse of asset values and a severe contraction of output, the 2018 economic crisis was characterized by a prolonged recession with persistent low (negative) rates of growth, dwindling investment performance, debt repayment problems, secularly rising unemployment, spiralling currency depreciation and high inflation The mainstream approach attributes this dismal performance to a lack of ‘structural reforms’ and/or exogenous policy factors However, this analysis shows that the underlying sources of the crisis are to be found not in the conjunctural cycles of reform fatigue, but rather in the post‐2001, neoliberal, speculation‐led growth model that relied excessively on hot‐money inflows and external debt accumulation This article argues that following the post‐2001 orthodox reforms, a foreign capital inflow‐dependent, debt‐led and construction‐centred economic growth model dominated the economy and caused a long build‐up of imbalances and increased fragilities that led to the 2018 crisis The Covid‐19 pandemic of 2020‒21 further exposed these fragilities, pushing the economy back into a recession with rapid capital outflows causing another round of sharp currency depreciation [ABSTRACT FROM AUTHOR] Copyright of Development & Change is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission However, users may print, download, or email articles for individual use This abstract may be abridged No warranty is given about the accuracy of the copy Users should refer to the original published version of the material for the full abstract (Copyright applies to all Abstracts )

Adaptability and its discontents: 21st-century skills and the preparation for an unpredictable future

Abstract: In recent years, the idea that the future is inherently unpredictable has gained considerable currency in educational policymaking. In this paper, we seek to critically examine and analyze the impl...

The impact of COVID-19 pandemic on hospitality stock returns in China

Abstract: Coronavirus disease (COVID-19) has already devastated the world, and the economy becomes the most critical challenge for any country worldwide The increasing uncertainty of the COVID-19 outbreak has made stock markets in China more turbulent and less predictable Under the current exceptional circumstances, the hospitality industry suffered the most due to the travel restrictions This research thus assesses the dynamic relationship among the COVID-19 outbreak, macroeconomic fluctuations and hospitality stock returns based on a structural VAR framework from 13 January to 11 May 2020, in China Evidence reveals that macroeconomic fluctuations and hospitality stock returns are significantly affected by shocks from the COVID-19 outbreak An unanticipated positive change of the COVID-19 explosion triggers an addition in exchange rates and causes a reduction in the stock market and hospitality industry returns For the impacts of the exchange rate, findings reveal that a surprise increase in exchange rates (currency depreciation) exerts a significant negative influence on stock market returns Additionally, a positive change of stock market returns is linked to a decline in exchange rates and a rise in hospitality industry returns Therefore, knowledge of these relationships can enable policymakers to evaluate and implement effective policies to stabilize the stock markets and help investors to make appropriate investment strategies

Central Banks Digital Currency: Detection of Optimal Countries for the Implementation of a CBDC and the Implication for Payment Industry Open Innovation

Abstract: This article analyzes the current situation of Central Bank Digital Currencies (CBDCs), which are digital currencies backed by a central bank. It introduces their current status, and how several countries and currency areas are considering their implementation, following in the footsteps of the Bahamas (which has already implemented them in its territory), China (which has already completed two pilot tests) and Uruguay (which has completed a pilot test). First, the sample of potential candidate countries for establishing a CBDC was selected. Second, the motives for implementing a CBDC were collected, and variables were assigned to these motives. Once the two previous steps had been completed, bivariate correlation statistical methods were applied (Pearson, Spearman and Kendall correlation), obtaining a sample of the countries with the highest correlation with the Bahamas, China, and Uruguay. The results obtained show that the Baltic Sea area (Lithuania, Estonia, and Finland) is configured within Europe as an optimal area for implementing a CBDC. In South America, Uruguay (already included in the comparison) and Brazil show very positive results. In the case of Asia, together with China, Malaysia also shows a high correlation with the three pioneer countries, and finally, on the African continent, South Africa is the country that stands out as the most optimal area for implementing a CBDC.