How Do Private Digital Currencies Affect Government Policy?
This paper provides a systematic evaluation of the different types of digital currencies. We express skepticism regarding centralized digital currencies and therefore focus our economic analysis on private digital currencies. Specifically, we highlight the potential for private digital currencies to improve welfare within an emerging market with a selfish government. In that setting, we demonstrate that a private digital currency not only improves citizen welfare but also encourages local investment and enhances government welfare.
We thank Franz Hinzen, Gur Huberman, Gloria Yu and conference participants at the ABFER/ NUS/ MAS Workshop on Digital Currency Economics for comments. Part of this paper was written while David Yermack was a visiting professor at Erasmus University Rotterdam. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.