Cryptocurrencies, Currency Competition, and the Impossible Trinity
We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk-adjusted martingale. Deviation from interest rate equality implies the risk of approaching the zero lower bound or the abandonment of the national currency. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable.
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Copy CitationPierpaolo Benigno, Linda M. Schilling, and Harald Uhlig, "Cryptocurrencies, Currency Competition, and the Impossible Trinity," NBER Working Paper 26214 (2019), https://doi.org/10.3386/w26214.
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Published Versions
Cryptocurrencies, Currency Competition, and the Impossible Trinity, Pierpaolo Benigno, Linda M. Schilling, Harald Uhlig. in NBER International Seminar on Macroeconomics 2021, Galí and West. 2022
Pierpaolo Benigno & Linda M. Schilling & Harald Uhlig, 2022. "Cryptocurrencies, Currency Competition, and the Impossible Trinity," Journal of International Economics, . citation courtesy of 
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