Center for Financial Stability

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Policy Library (Note that the library is no longer being updated.)

You can filter the studies shown below by category, keyword, and/or author below or go back to the main library page.

Selected Studies
Virtual Currency

As technology propels the development of virtual worlds, members of these communities are creating and circulating their own currency. “Fiat” money produced in virtual worlds shares some of the functions as more traditional forms of money (see “Virtual Currency Schemes” by the ECB). Today, there are many virtual currencies. However, due to Bitcoin’s dominant market share, the CFS policy library focuses largely on Bitcoin.

Bitcoin is an extraordinary development at the nexus of software engineering and monetary theory. Due to the complexity and multidimensional nature of the topic, CFS hosted a roundtable to delve into details regarding Bitcoin. As part of our background work, we assembled and digested a wide range of papers, posting our favorite offerings on issues covering technology (see “Bitcoin: A Peer-to-Peer Electronic Cash System”), monetary and investment, as well as legal and regulatory.

May 1, 2015 Bitcoin Needs Smart and Safe Regulation
Lawrence Goodman
Lawrence Goodman discusses how the advent of virtual money may be another ground-breaking chapter in the history of finance, yet operations outside regulatory bounds pose risks. Therefore, it is essential to create a forward-looking and largely hands-off regulatory environment that does not stifle the entrepreneurial energies that drive this industry.
January 27, 2015 The Age of Cryptocurrency
Paul Vigna and Michael Casey (The Wall Street Journal)
The Age of Cryptocurrency illustrates how cybermoney is poised to launch a revolution, one that could reinvent traditional financial and social structures while bringing the world's billions of "unbanked" individuals into a new global economy. Cryptocurrency holds the promise of a financial system without a middleman, one owned by the people who use it and one safeguarded from the devastation of a 2008-type crash.
January 26, 2015 Strategies for Improving the U.S. Payment System
Federal Reserve System
This paper presents a multi-faceted plan for collaborating with payment system stakeholders including large and small businesses, emerging payments firms, card networks, payment processors, consumers and financial institutions to enhance the speed, safety and efficiency of the U.S. payment system.
December 18, 2014 The Digital Revolution in Banking
Gail Kelly (Westpac / Group of Thirty)
The paper outlines the march of digital technologies into financial services and describes emerging policy questions.
October 7, 2014 Bitcoin: Technical Background and Data Analysis
Anton Badev and Matthew Chen (Federal Reserve Board)
This paper provides the necessary technical background to understand basic Bitcoin operations and documents a set of empirical regularities related to Bitcoin usage.
September 16, 2014 Innovations in payment technologies and the emergence of digital currencies
Robleh Ali, John Barrdear, Roger Clews and James Southgate (Bank of England)
Modern electronic payment systems rely on trusted, central third parties to process payments securely. Recent developments have seen the creation of digital currencies like Bitcoin, which combine new currencies with decentralised payment systems.
September 16, 2014 The economics of digital currencies
Robleh Ali, John Barrdear, Roger Clews and James Southgate (Bank of England)
Although digital currencies could, in theory, serve as money for anybody with an internet-enabled device, at present they act as money only to a limited extent and only for relatively few people.
December 1, 2013 Is Bitcoin a Real Currency?
David Yermack (New York University Stern School of Business)
Motivated by Bitcoin's rapid appreciation in recent weeks, I examine its historical trading behavior to see whether it behaves like a traditional sovereign currency. Bitcoin has exchange rate volatility an order of magnitude higher than the volatilities of widely used currencies, undermining Bitcoin's usefulness as a unit of account or a store of value. Bitcoin's daily exchange rates exhibit virtually zero correlation with bona fide currencies, making Bitcoin useless for risk management purposes and exceedingly difficult for its owners to hedge. Bitcoin also lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. Bitcoin appears to behave more like a speculative investment than like a currency.
October 30, 2013 Overview of Bitcoin and the Bitcoin Network; Regulatory Stances Toward Bitcoin
Evan L. Greebel and Kathleen H. Moriarty (Katten Muchin Rosenman LLP)
This paper provides a summary explanation of the salient features of Bitcoins and the Bitcoin Network, as well as a brief overview of the current regulatory regimes grappling with Bitcoin, with particular emphasis on the US.
July 15, 2013 2013 Bitcoin Mid-Year Review and Outlook
Jonathan Stacke (The Genesis Block)
This mid-year review covers the following topics: macro trends, trading update, Bitcoin exchanges, entrepreneurs and venture capital, protocol developments, mining update, regulatory environment, global adoption, and notable events.
July 4, 2013 How Bitcoin Works Under the Hood
Scott Driscoll
The author explains the Bitcoin system: how sending money in Bitcoin works, Bitcoin transactions and the ledger system, anonymity, double spending and the block chain, mining and pools.
June 1, 2013 The Nature of the Form: Legal and Regulatory Issues Surrounding the Bitcoin Digital Currency System
Joshua J. Doguet
Part I of this Comment looks at the specific shortcomings of the current financial system, which prompted Bitcoin's development. It then explains how Bitcoin's architecture enables it to overcome these shortcomings. Part II reviews the legal barriers that private currencies face and analyze how they might apply to Bitcoin. Part III provides an overview of the Bitcoin economy by examining its participants and discussing the hurdles it must overcome if it is ever to become a mainstream currency. Part IV evaluates the motivations behind, and the merits of, three regulatory regimes, and also considers the Bitcoin community's likely response.
May 19, 2013 Mapping Bitcoin Adoption: A Global Perspective In 11 Graphs
Jonathan Stacke (The Genesis Block)
Bitcoin has made significant progress towards becoming the worlds first truly global currency over the past few years. To gain better perspective on bitcoin's impact, we took a look at global wallet downloads, demonstrated interest by region, exchange volumes across currencies, mining node locations, real-world interactions around bitcoin, and the major companies and investors pushing the bitcoin economy forward.
April 3, 2013 The Bitcoin Bubble and the Future of Currency
Felix Salmon (Reuters)
There are a couple of reasons why the bubble is sure to burst. The first is just that it's a bubble, and any chart which looks like the one at the top of this post is bound to end in tears at some point. But there's a deeper reason, too - which is that bitcoins are an uncomfortable combination of commodity and currency. Still, it's worth taking a look behind the bitcoin bubble, because there are fascinating implications for anybody who cares about payments, or currencies, or trust.
October 1, 2012 Virtual Currency Schemes
European Central Bank
This report begins by defining and classifying virtual currency schemes based on observed characteristics. Virtual currency schemes differ from electronic money schemes insofar as the currency being used as the unit of account has no physical counterpart with legal tender status. The first case study is on Bitcoin, a virtual currency scheme based on peer-to-peer network. The second case study is Second Life's virtual currency scheme, in which Linden Dollars are used. Thereafter, a preliminary assessment is presented of the relevance of virtual currency schemes for central banks, paying attention mostly to schemes which are more open and linked to the real economy (i.e. Type 3 schemes). The assessment covers the stability of prices, of the financial system and of the payment system, looking also at the regulatory perspective. It also addresses reputational risk concerns.
March 31, 2012 Nerdy Money: Bitcoin, the Private Digital Currency, and the Case Against Its Regulation
Nikolei M. Kaplanov (Temple University)
This Comment explores the lawfulness of using bitcoin, a privately-issued currency transacted on a peer-to-peer network, and the ability of the federal government to bar transactions between two willing parties. While there are no cases yet challenging the ability of parties in the United States to make transactions using bitcoins, there are policymakers who have denounced the use of bitcoin. This has led to the question of whether the federal government has the ability under current federal law to prohibit the use of bitcoins between willing parties. This Comment will show that the federal government has no basis to stop bitcoin users who engage in traditional consumer purchases and transfers. This Comment further argues that the federal government should refrain from passing any laws or regulations limiting the use of bitcoins. Should any claim arise, this Comment argues that there is a perfectly acceptable model with which to analogize bitcoin use: community currencies.
December 9, 2011 Bitcoin: An Innovative Alternative Digital Currency
Reuben Grinberg (Yale Law School)
Bitcoin is a digital, decentralized, partially anonymous currency, not backed by any government or other legal entity, and not redeemable for gold or other commodity. It relies on peer-to-peer networking and cryptography to maintain its integrity. Compared to most currencies or online payment services, such as PayPal, bitcoins are highly liquid, have low transaction costs, and can be used to make micropayments. This new currency could also hold the key to allowing organizations such as Wikileaks, hated by governments, to receive donations and conduct business anonymously.Although the Bitcoin economy is flourishing, Bitcoin users are anxious about Bitcoin's legal status. This paper examines a few relevant legal issues, such as the recent conviction of the Liberty Dollar creator, the Stamp Payments Act, and the federal securities acts.
November 1, 2008 Bitcoin: A Peer-to-Peer Electronic Cash System
Satoshi Nakamoto
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
September 17, 1999 Remarks before the Electronic Payment Symposium
Edward M. Gramlich (Federal Reserve Board)
The United States is not at the forefront in the adoption of electronic money systems, one area that would seem most eligible for the information revolution. Use of electronic money systems appears to be growing in at least a few foreign countries. In this talk I will try to assess the state of the electronic money transformation, here and abroad. I mention some promises, some stumbling blocks, and some technological and regulatory issues that will have to be dealt with as electronic money use proceeds. The idea of using technology to improve the efficiency of the payment system is very old.

Library Catalog Interactive Search
You can filter the studies shown below by category, keyword, and/or author.

Category: Keyword: Author:
Show All Broker Dealer/Fiduciary Duty Central Clearing Cost-Benefit Analysis
Executive Compensation Hedge Funds Systemic Risk Market Liquidity Concerns
Position Limits Rating Agencies Risk Retention Shadow Banking
Short Sales Too-Big-to-Fail Transparency Virtual Currency
Volcker Rule

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