Alt-coins

Bitcoin remains number one in a market of more than 500 cryptocurrencies and a total value of $16.8 billion. It accounts for 77{5e7f07e14add20b2e04f4edb85a447d3cd8121fc27b809645e9fed603c22cc5c} of the monthly trading volume in all digital currencies which is estimated at $7 billion, a rather modest amount. But who is using Bitcoins?  Cecchetti and Schoenholtz find that 97{5e7f07e14add20b2e04f4edb85a447d3cd8121fc27b809645e9fed603c22cc5c} of Bitcoin transactions are in China where the cryptocurrency is used as a means to evade capital controls. As a result, the dollar price of Bitcoin has become very sensitive to developments in the Chinese economy.

What Bitcoin Has Become
By: Stephen G. Cecchetti, Kermit L. Schoenholtz  – New York University, Brandeis University

Dollar-pegged cryptocurrencies

Unlike Bitcoin, which is quantity constrained, the newest versions of cryptocurrencies opt for a price constrain by pegging their exchange rate to the dollar. In this article Larry White explains why Tether, a dollar-pegged digital currency launched in 2015, might end up replacing Bitcoin while the majority of similar dollar-pegged currencies have flopped.

Dollar-Denominated Cryptocurrencies: Flops and Tethered Success
By: Larry White – CATO Institute

Monetary policy and cryptocurrencies

In this paper Fernandez-Villaverde and Sanches argue that competition among privately issued cryptocurrencies is a socially wasteful activity as it fails to deliver the socially optimum quantity of money. Monetary policy on the other hand, can drive private currencies out of the economy by adopting a rule that pegs the real value of government money.
Can Currency Competition Work?
Authors:Jesus Fernandez-Villaverde, Daniel Sanches
From: University of Pennsylvania – Federal Reserve Bank of Philadelphia

A number of central banks are contemplating the possibility of issuing sovereign digital currencies and Bordo and Levin, in this paper, define the three main principles that a central bank digital currency (CBDC) should abide by. Under the assumption that CBDC is interest bearing the benchmark monetary policy rule, a version of Taylor rule, can then be framed in terms of adjustments to that interest rate.
Central Bank Digital Currency and the Future of Monetary Policy
Authors: Michael Bordo, Andrew Levin
From: Harvard University – Federal Reserve Board