JEL Code
B53, E41, E42, E44, E51
Abstract
Monetary systems comprise various layers of real and financial assets arranged hierarchically. Due to its properties, Bitcoin is a suitable asset to become the base money of a monetary system once its price has stabilized and people see it more like a medium of exchange than an investment. We review Bitcoin’s characteristics and explain their effect on its intra- and inter-temporal liquidity. We argue that Bitcoin will lower its bid-ask spread once users adopt financial assets convertible to Bitcoin. We propose the use of three financial assets working as Bitcoin derivatives to reduce Bitcoin’s demand shocks and lower its volatility: real bills, private scrip and cash notes. We explain when will this process take place and why people would have an incentive to rely on credit even under a Bitcoin standard.
Recommended Citation
Blasco, Eduardo and García de Enterría, Carlos
(2023)
"Striving Toward Bitcoin Price Stability: Second-layer Money and the Case for Real Bills, Scrip & Notes,"
Journal of New Finance: Vol. 3:
No.
1, Article 6.
DOI: 10.46671/2521-2486.1024
Available at:
https://jnf.ufm.edu/journal/vol3/iss1/6
Submission Date
12-15-2021
Approval Date
7-31-2023
Publication Date
9-6-2023
Included in
Economic Theory Commons, Finance Commons, Macroeconomics Commons