{"title":"Cryptocurrency, Decentralized Finance, and the Evolution of Exchange: A Transaction Costs Approach","authors":"J. Caton, Cameron Harwick","doi":"10.2139/ssrn.3891593","DOIUrl":"https://doi.org/10.2139/ssrn.3891593","url":null,"abstract":"We leverage a transaction costs narrative to provide a theoretically unified presentation of the evolution of exchange, with the latest evolutionary frontier being cryptocurrency and decentralized finance. We show that with each new development in the evolution of money, the new form or medium of exchange must reduce transaction costs relative to relevant alternatives. The development of blockchain and cryptocurrency reduced the cost of transfering currency by removing the need for a trusted third party to intermediate funds while also providing the benefit of anonymity/pseudonymity. Likewise, decentralized finance does not require a third party to intermediate savings and investment and can provide contingent anonymity to borrowers. While these innovations have attracted investment in the economically developed world, they appear to have significantly reduced transaction costs for transactors who might otherwise be defrauded of funds by corrupt governments that extort third parties responsible for intermediating funds.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78452038","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jonas Gross, Johannes Sedlmeir, Matthias Babel, Alexandra Bechtel, Benjamin Schellinger
{"title":"Designing a Central Bank Digital Currency with Support for Cash-Like Privacy","authors":"Jonas Gross, Johannes Sedlmeir, Matthias Babel, Alexandra Bechtel, Benjamin Schellinger","doi":"10.2139/ssrn.3891121","DOIUrl":"https://doi.org/10.2139/ssrn.3891121","url":null,"abstract":"Most central banks in advanced economies consider issuing central bank digital currencies (CBDCs) to address the declining use of cash and to position themselves against increased competition from Big Tech companies, cryptocurrencies, and stablecoins. One crucial design dimension of a CBDC system is the degree of transaction privacy. Existing solutions are either prone to security concerns or do not provide full (cash-like) privacy. Moreover, it is often argued that a fully private payment system and, in particular, anonymous transactions cannot comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulation. In this paper, we follow a design science research approach (DSR) to develop and evaluate a holistic software-based CBDC system that supports fully private transactions and addresses regulatory constraints. To this end, we employ zero-knowledge proofs (ZKP) to impose limits on fully private payments. Thereby, we are able to address regulatory constraints without disclosing any transaction details to third parties. We evaluate our artifact in interviews with leading economic, legal, and technical experts and find that a regulatorily compliant CBDC system that supports full (cash-like) privacy is feasible.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77120243","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Private Information and Currency Returns: A Corporate Investment Connection","authors":"Steven J. Riddiough, Huizhong Zhang","doi":"10.2139/ssrn.3711715","DOIUrl":"https://doi.org/10.2139/ssrn.3711715","url":null,"abstract":"We uncover a novel source of predictive information, originating from the announcements of cross-border mergers and acquisitions (M&As), that forecasts economic acceleration and currency returns. Consistent with the announcements revealing firms' private expectations about economic fundamentals, we find that a country's economic growth accelerates, and their local currency appreciates, following months in which their announced cross-border M&A net inflows are abnormally high; while the opposite outcomes are observed following abnormally high M&A net outflows. The predictability captures reversals in economic acceleration and is driven by the acquisition decisions of domestic firms. A currency portfolio that exploits the predictability is found to generate a Sharpe ratio of over 0.70 and to offer large diversification gains to global currency investors.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86857707","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Christoph J. Börner, Ingo Hoffmann, Jonas Krettek, Lars Kuerzinger, Tim Schmitz
{"title":"On the Return Distributions of a Basket of Cryptocurrencies and Subsequent Implications","authors":"Christoph J. Börner, Ingo Hoffmann, Jonas Krettek, Lars Kuerzinger, Tim Schmitz","doi":"10.2139/ssrn.3851563","DOIUrl":"https://doi.org/10.2139/ssrn.3851563","url":null,"abstract":"This paper evaluates and assesses the risk associated with capital allocation in cryptocurrencies (CCs). In this regard, we take a basket of 27 CCs and the CC index EWCI− into account. After considering a series of statistical tests we find the stable distribution (SDI) to be the most appropriate to model the body of CCs returns. However, as we find the SDI to possess less favorable properties in the tail area for high quantiles, the generalized Pareto distribution is adapted for a more precise risk assessment. We use a combination of both distributions to calculate the Value at Risk and the Conditional Value at Risk, indicating two subgroups of CCs with differing risk characteristics.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78005430","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Behavior of the Bank of England and the Pound Sterling in the Conditions of Brexit Uncertainty","authors":"E. Huseynzade","doi":"10.2139/ssrn.3756982","DOIUrl":"https://doi.org/10.2139/ssrn.3756982","url":null,"abstract":"The list of sectors affected by the Brexit process include the pound sterling and including the decisions of the Bank of England, which is its regulatory body. Impacts on the Brexit process have largely occurred since the 2016 referendum. This gives us reason to believe that the main indicator influencing monetary policy in 2016-2020 is the economic and political uncertainties created by the information caused by Brexit. The purpose of the study is to analyze the fluctuations in the national currency due to the Brexit effect and the reactions of the Bank of England to this process. We can consider the Brexit process as the peak of Euroscepticism in the United Kingdom. This issue has also been discussed in the European Union for years. Although the Brexit process actually took place on January 31, 2020. However, Brexit uncertainty is having an impact on the economy after certain announcements. Between 2016 and 2020, the pound and the Bank of England experienced a number of historic lows.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75358976","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Money is Money: The Economic Impact of BerkShares","authors":"Josh Matti, Yang Zhou","doi":"10.2139/ssrn.3732903","DOIUrl":"https://doi.org/10.2139/ssrn.3732903","url":null,"abstract":"Community currencies are a popular way localities around the world pursue a sustainable economy. However, no studies look at the economic impact of community currencies using modern causal inference methods. We use the synthetic control method to examine the short and long-term effects of the popular community currency BerkShares on the number of businesses, unemployment rate, and per capita income in the county in which it circulates. The results suggest that BerkShares has had no impact either directly on businesses or indirectly on the local economy as a whole. Additionally, BerkShares has not impacted business dynamics. Results from the synthetic control method suggest that establishment births, deaths, expansions, and contractions following BerkShares are no different than what they would have been without the currency. Given its lack of impact, the results serve as a caution for localities considering community currencies as an economic development strategy.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74182802","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Ambiguity, Optimal Currency Overlay, and Home Currency Bias","authors":"Urban Ulrych, N. Vasiljević","doi":"10.2139/ssrn.3683821","DOIUrl":"https://doi.org/10.2139/ssrn.3683821","url":null,"abstract":"This paper addresses the problem of determining an optimal currency allocation for a risk-and-ambiguity-averse international investor. A robust mean-variance model with smooth ambiguity preferences is used to derive the optimal currency exposure. The theoretical part of the paper shows that the sample-efficient currency demand can be calculated as the solution to a generalized ridge regression. Through the lens of these results, we demonstrate that our model offers a new explanation of the home currency bias as the optimal currency allocation under extreme ambiguity aversion. The investor's dislike for model uncertainty induces a disproportionately high currency hedging demand. The empirical analysis demonstrates how ambiguity leads to a larger estimation bias and simultaneously narrows the confidence interval of the optimal currency exposure. The out-of-sample backtest illustrates that accounting for ambiguity enhances the stability of optimal currency allocation and significantly improves the risk-adjusted portfolio performance net of transaction costs.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82202563","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Influence of Stablecoin Issuances on Cryptocurrency Markets","authors":"Lennart Ante, Ingo Fiedler, E. Strehle","doi":"10.2139/ssrn.3626969","DOIUrl":"https://doi.org/10.2139/ssrn.3626969","url":null,"abstract":"Abstract Stablecoins are digital currencies that are pegged to non-volatile assets. As alternatives to fiat currencies, they constitute an important aspect of cryptocurrency markets. We analyze returns of cryptocurrencies around 565 stablecoin issuances events for seven different stablecoins between April 2019 and March 2020. Our event study reveals market downturns in the week before issuance and positive abnormal returns in the twenty-four hours around the issuance. Effects differ and remain insignificant for some stablecoin subsamples and issuance size does not significantly affect the abnormal returns. We conclude that stablecoin issuances contribute to price discovery and market efficiency of cryptocurrencies.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91277747","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Real Exchange Rate Dynamics Beyond Business Cycles","authors":"Dan Cao, Martin D. D. Evans, Wenlan Luo","doi":"10.2139/ssrn.3552189","DOIUrl":"https://doi.org/10.2139/ssrn.3552189","url":null,"abstract":"We examine how medium-term movements in real exchange rates and GDP vary with international financial conditions. For this purpose, we study the international transmission of productivity shocks across a variety of IRBC models that incorporate different assumptions about the persistence of productivity shocks, the degree of international risk sharing and access to international asset markets. Using a new global solution method, we demonstrate that the transmission of productivity shocks depends critically on the proximity of a national economy to its international borrowing limit. We then show that this implication of the IRBC model is consistent with the behavior of the US-UK real exchange rate and GDP over the past 200 years. The model also produces a negative correlation between relative consumption growth and real depreciation rate consistent with more recent data, and hence offers a resolution of the Backus-Smith puzzle.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80697003","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Monetary Appreciation and Foreign Currency Mortgages: Lessons from the 2015 Swiss Franc Surge","authors":"R. Vassileva","doi":"10.54648/erpl2020008","DOIUrl":"https://doi.org/10.54648/erpl2020008","url":null,"abstract":"Since 2007 the Swiss franc had been getting stronger, but it was a decision by the Swiss National Bank to unpeg the Swiss franc from the Euro in 2015, which resulted in its significant appreciation and shocked FX markets. Many citizens in Central and Eastern Europe were directly affected because they had taken out mortgages denominated in Swiss francs or linked to Swiss francs. In these countries, foreign currencymortgages are common because the interest rates on foreign denominated loans are lower, foreign currencies are more stable than the local currency, some citizens earn their income abroad, etc. This article analyses the impact of the Swiss franc surge on mortgages denominated in or linked to Swiss francs fromthe perspective of contract law, consumer law and financial regulation. Then, it examines the strengths and weaknesses of the responses to the Swiss franc controversy of three jurisdictions – Bulgaria, Croatia and Serbia, which addressed the issue in distinct ways despite their relative legal cultural similarities. The purpose of the comparison is to consider what lessons may be learned from the Swiss franc surge and how they may inform the recent Directive 2014/17/EU on mortgage credit.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83915502","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}